# Petition for Writ of Certiorari — Balax, Inc. v. Bendix Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385607_0413%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1973 - **Citation:** 414 U.S. 819 ## Text > Fl A Be a AMES. FILE COPY) tremnr yt IN THE SUPREME COURT OF THE UN October Term, 1972 No. 7271401 BALAX, INC. and JOHN M. VAN VLEET Petitioners MNT. ercesmeansctenenaber encase V. THE BENDIX CORPORATION and SELLEW CORPORATION Respondents PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT EDWARD A. HAIGHT JOHN W. HoFELpT 55 East Monroe Street Chicago, Illinois 60603 MAXWELL H. HErriorr THOMAS O. KLOEHN 780 North Water Street Milwaukee, Wisconsin 53202 Counsel for Petitioners HAMMERSMITH-BREITHAUPT PRINTING CORP., MILWAUKEE, WIS, STN ee Pees St kale ohhh Ae Sars? PP REEL RIO FS REAM INDEX Page RN cect cacassctecicunicasantenioventemsinasnatisien 1,2 DN sorsecseriecicrasccteaeraecsasteahintsicmonieenctioningicigene 2,3 I os cascacesieaemnceeounnabelaanecs 3,4 sc easadecaioreannblonens 4,5 Concise Statement of the Case ...................-.-c.c-ecse-ceaes 5-8 Reasons for Granting the Writ .................2..2....-:-200---- 8-30 I cricrss acceso ec aniaenn chdcaccoeabasnntes Gaimedanecealons 30 FE ORE GR NEI I OA SAE EEN 1-30 REC ean A ae a Res tials eerie ene Aue 31-48 I cal ai eas Goa nee hicks nansgeel eri 49-73 A Fee AT ae eatr enh ee BOALe Nr Aria Aaa CN EEE! 74-111 CITATIONS Cases: Automatic Radio Co., Inc. v. Hazeltine Research, fac., 3399 US. S27 (1950) —.................. 12, 13, 16, 18 Bigelow, et al v. RKO Radio Pictures, Inc., et al oo Bg 2 Re eer ens 28 Brown Shoe Co., Inc. v. United States, 370 U.S. p< PRU ERINEE Uteaaie SRT ARE LERCH NA 23 Continental Ore Co., et al v. Union Carbide & Carbon Corp., et al (1962) 370 U.S. 690 .......... 29 Fortner Enterprises, Inc. v. United States Steel Corp., et al, 394 U.S. 495 (1969) uw. 17, 19 Klor’s Inc. v. Broadway-Hale Stores, Inc., et al, ge eT 17, 20 iar Vo ng | ii Page Lear v. Adkins, 395 U.S. 653 (1969)....7, 8, 12, 13, 14, 15, 16, 17, 31 Northern Pacific Railway Co., et al v. United States, 356 U.S. | SOD eee 17, 18 Pope Manufacturing Co. v. Gormully, 144 U.S. RN ee ee * United States v. DuPont & Company, 353 U.S. 586, 77 S. Ct. 872, 1 L. Ed. 2d 1057 i: ) 23 United States v. Glaxo Group Limited, et al (1973), — U.S. —, 35 L. Ed. 2d 104... 13 United States v. Grinnell Corp., 384 U.S. 563, 86 S. Ct. 1698, 16 L. Ed. 24 778 23 United States v. Masonite Corporation, et al, 316 VS. M5 (M) 14, 17 United States v. Singer Manufacturing Co., 374 Oe 14 Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100 (1969) 4, 23, 26, 27, 30 IN THE SUPREME COURT OF THE UNITED STATES October Term, 1972 | No. BALAX, INC. and JOHN M. VAN VLEET Petitioners Vv. THE BENDIX CORPORATION and SELLEW CORPORATION Respondents PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT The petitioners, Balax, Inc. and John M. Van Vleet, respectfully pray that a Writ of Certiorari issue to review the judgment of the United States Court of Appeals for the Seventh Circuit reversing the decision of the United States District Court for the Eastern District of Wis- consin. OPINIONS BELOW The judgment and opinion of the Seventh Circuit Court of Appeals, review of which is sought, is officially reported at 471 F. 2d 149 (7th Cir. 1972), and is re- printed here as Appendix A together with the Order of January 16, 1973, by the Seventh Circuit Court of Ap- peals denying rehearing. The decision of the United 2 States District Court for the Eastern District of Wiscon- sin dated January 8, 1971, reversed by that judgment and decision, is officially reported at 321 F. Supp. 1095 (E.D. Wis. 1971), and is reprinted here together with the un- reported findings of Fact and Conclusions of Law filed on February 10, 1971, as Appendix B. The first decision in this case by the Court of Appeals which remanded it to the District Court for reconsideration was entered on January 30, 1970, and is officially reported at 421 F. 2d 809 (7th Cir. 1970), cert. den. 399 U.S. 911 (1970) and reprinted here in Appendix C. The first decision and opinion of the District Court in this case is officially re- ported at 29] F. Supp. 328 (E.D. Wis. 1968) and is re- printed here as Appendix D. JURISDICTION This action was initiated by respondents’ Complaint alleging infringement of three United States patents cov- ering swaging taps, and two counts of unfair competition, giving rise to Federal jurisdiction under 28 USC 1338 and 1332. By their Amended Answers and Counter- claims petitioners asserted among other defenses violation of the antitrust laws. Federal jurisdiction of this antitrust counterclaim exists under 28 USC 1337. Respondents’ swaging tap patents have been held in- valid and their other claims dismissed by a judgment that is now final, 421 F. 2d 809 (9th Cir. 1970), cert. denied, 399 U.S. 911. Also, all of petitioners’ counter- claims have been finally dismissed, except the declaratory judgment of invalidity of respondents’ patents, and the antitrust claim presented here, i.e., particularly violation of Section | and Section 2 of the Sherman Act and Sec- tion 4 of the Clayton Act. Hence this Court's jurisdic- oe One 3 tion invoked by this Petition for Certiorari is founded upon 28 USC 2101 (c). QUESTIONS PRESENTED 1. Do the rights to contract under state laws and to license and bring suit for patent infringement under the patent laws shield from the thrust of the anti-trust laws industry regimenting activities which include: a) contracts with certain competing, but non-produc- ing manufacturers, requiring them to purchase all their requirements of the product only from the patent owner or his producing licensees and, as part of the purchase contract, to acknowledge or agree never to contest the validity of the seller’s patents; b) licenses to other competing manufacturers who acknowledge or agree never to contest the validity of the patents; c) refusal to license and prosecution of a suit for patent infringement to eliminate the sole remain- ing effective competing manufacturer of the prod- uct as part of an illegal combination. d) settlement of infringement suits against other com- peting manufacturers by consent decrees wherein the validity of the patents are acknowledged and by licenses which include acknowledgement of or agreement never to contest the validity of the pat- ents. 2. Does the Court of Appeals’ comparison of Benuix- Besly’s’ actual sales with a nonexistent “potential” mar- ket that is three times as large as the actual market support the conclusion that Bendix-Besly lacked sufficient control over “the part of trade or commerce among the several 1Bendix Corporation is the successor in interest of Besly-Welles, the original patent owner, and is sometimes referred to as Bendix and some- times as Bendix-Besly. 4 states” to “monopolize or attempt to monopolize or com- bine or conspire * * * to monopolize” it in violation of Section 2 of the Sherman Act? 3. In view of the facts that Bendix-Besly (a) held a presumptive monopoly covering the entire swaging tap market, (b) had entered into contracts binding enough of its competitors never to challenge that monopoly so that Bendix-Besly controlled access to 77% to 91% of the market, and (c) refused to license Balax, is the unchal- lenged and uncontradicted testimony of the president, the vice president, and the sales manager of Balax that Balax’s sales were only 50% to 60% of what those sales would have been but for Bendix-Besly’s violations suf- ficient evidence of injury under Zenith Radio Corp. v. Hazeltine Research, Inc. (1969) 395 U.S. 100 to satisfy the injury requirement of Section 4 of the Clayton Act to create a private cause of action for antitrust violations? STATUTES INVOLVED “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or com- merce among the several States, or with foreign nations, is declared to be illegal: * * *. July 2, 1890, c. 647, §1, 26 Stat. 209; August 17, 1937, c. 690, Title VIII, 50 Stat. 693 July 7, 1955, c. 281, 69 Stat. 282.” (15 USCA §1) “Every person who shail monopolize, or attempt to monopolize, or combine or conspire with any other per- son or persons, to monopolize any part of the trade or commerce among the several States, or with foreign na- tions shall be guilty of a misdemeanor, * * *. July 2, 1890, c. 647, §2, 26 Stat. 209; July 7, 1955, c. 281, 69 Stat. 282.” (15 USCA §2) 5 “Any person who shall be injured in his business or property by reason of anything forbidden in the anti- trust laws may sue therefor in any district court of the United States in the district in which the defendant re- sides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained and the cost of suit, including a reasonable attorney’s fee. October 15, 1914, c. 323, §4, 38 Stat. 731.” (15 USCA §15) CONCISE STATEMENT OF THE CASE This suit was initiated by a complaint filed on June 17, 1964 (A. 21)? by the respondents charging the petitioners, Balax, Inc. and John M. Van Vleet (hereafter “Balax’’) with infringement of three of respondents’ swaging tap* patents together with alleged acts of unfair competition. Upon discovering that respondents had licensed manu- facturers of 75% of the cutting taps sold and had secured requirements purchase agreements from four other major tap manufacturers, all of which agreements were con- ditioned on covenants never to challenge the validity of respondents’ patents, petitioners filed an amended An- 2The letter “A” refers to the printed appendix in the court below. 3Prior to 1950, all interior screw threads on the insides of holes were formed by cutting taps, which are long cylindrical steel tools with helical threads ground on their exterior surfaces and deep axial flutes interrupting the threads to create cutting edges and channels through which chips cut from the work piece are expelled. Swaging taps, all of which were covered by one or more of the Bendix-Besly patents, have no flutes and form threads, instead, by deforming and displacing the material of the work piece when turned into the hole. Swaging taps are not used in the more brittle materials, such as cast iron, most carbon steels and the like, which constitute about half of the demand for taps. Swaging taps are much more economical and have a much longer life than cutting taps. (App. C, p. 51, 421 F.2d 809, 811) Swaging taps and cutting taps cannot be used on the same work piece because swaging taps require 2 larger hole than cutting taps can work in. Ne ae 6 swer and Counterclaim on February 14, 1966 (A. 45) charging, inter alia, that Bendix violated §§1 and 2 of the Sherman Act and §4 of the Clayton Act. Petitioners founded this counterclaim upon those agreements to- gether with correspondence between respondents and their competitors, respondents’ refusal to license petitioners (al- though respondents did offer a license after this Amended Counterclaim was filed) and communications with pe- titioners and testimony of respondents’ executives. Each of the three Bendix patents which Balax was charged to infringe was held to be invalid. Two were held to be invalid in the District Court because the claimed inventions had been in public use by Bendix more than a year before the respective applications for patent (A. 36, App. D). The third patent was held to be valid and infringed by the District Court (App. D) but found by the Court of Appeals for the Seventh Cir- cuit (App. C) to be completely anticipated by a 1939 German patent. The Court of Appeals also affirmed the trial court’s dismissal of the Bendix unfair competition counts but re- versed the dismissal of the anti-trust counterclaim of Balax alleging violation of sections 1 and 2 of the Sher- man Act and Section 4 of the Clayton Act. As to the latter, the Court of Appeals stated: “* * **that part of the judgment dismissing defend- ants’ antitrust counterclaim is vacated and set aside and this cause is ordered remanded to the district court for a reconsideration of such counterclaim ** *” (App. C, p. 73, 421 F. 2d at 821) Upon the request of Bendix (A. 155), the District Court allowed the record to be reopened and supple- mented by evidence not available at the original trial in 1968 and by rebuttal evidence of Balax (A. 157). Ben- 7 dix objected to precluding evidence that was available at the 1968 trial, arguing that the 1969 decision in Lear v. Adkins, 395 U.S. 653 (1969), had so changed the law as to warrant a retrial. The District Court ruled: “Bendix Corporation has not persuaded me that a valid reason exists for so broadening the prospective hearing. “Although the court of appeals discussed the im- pact of Lear v. Adkins, 395 U.S. 653 (1969), it is my belief that Lear does not justify the broadened hearing sought by Bendix Corporation. “Lear relieved a licensee from any estoppel which barred said licensee from challenging the licensors’ patent. In the case at bar, however, Balax, Inc. does not rely upon the protection of the Lear decision for the simple reason that it has never been a licensee.” (A. 163-164) Accordingly, at a hearing on November 9 and 10, 1970, limited to the question of liability by consent of the parties, evidence not available at the 1968 trial was en- tered of record. On the thus augmented record, the Dis- trict Court sustained the anti-trust counterclaim of Balax (App. B). An interlocutory appeal pursuant to the pro- visions of 28 U.S.C. 1292(b) was taken by Bendix from the District Court’s decision on anti-trust liability. The decision of the Court of Appeals, review of which is sought here, reversed the District Court (App. A, 471 F. 2d 151). A basis for the reversal was “that Lear should not be applied retroactively to this case in its dam- age aspects” (App. A, p. 15; 471 F. 2d at 157-8). This, despite the fact that petitioners have never relied upon Lear and Lear is nowhere mentioned in either the de- cision or the Findings of Fact and Conclusions of Law of the District Court. Neverthelesss, the Court of Ap- ee ERM AD 8 peals found that the District Court “apparently assumed that Lear was relevant” (App. A, p. 10; 471 F. 2d 155). The Court of Appeals also found, contrary to the find- ings of the District Court, that Bendix lacked sufficient market control to violate Section 2 of the Sherman Act and that petitioners failed to prove that they had been “injured” as required by Section 4 of the Clayton Act. REASONS FOR GRANTING THE WRIT A. The decision of the Seventh Circuit Court of Ap- peals is predicated upon the erroneous premise that covenants not to contest the validity of patents were, prior to Lear, immunized from the anti-trust laws regardless of the purpose for such covenants. To arrive at the conclusion reached below, it is neces- Sary to consider that prior to Lear the right to extract covenants not to contest the validity of patents was un- limited. Indeed, in the factual context of this Case, it is necessary to consider that right as applicable not only to patent licenses but also to mere contracts relating to the purchase of patented products. The employment by Bendix of this right to regiment the industry and to exclude the competition of respondent Balax is apparent from the fact findings of the District Court (App. B). By June of 1964, when this suit was commenced, Ben- dix had licensed five of its competitors to manufacture swaging taps under the Bendix patents; each agreeing in its license not to contest the validity of the licensed patents during the term of the license “and thereafter” (Finding 12(b), App. B, p. 40). 9 By that date, Bendix also had written agreements with five additional competitors. Under these agreements, these competitors agreed to buy all their requirements for swaging taps only from Bendix and its licensees and, for an unlimited time, not to contest the validity of the Bendix patents (Finding 12(b), App. B, pp. 40, 43). Four of the five were also granted options to secure patent licenses — and agreed never to contest the validity of the Bendix patents during the life of the agreements and even after termination of the agreements (Finding 12(b)). That such covenants did not necessarily depend upon the grant of any patent rights is apparent from the extraction of a similar covenant from a mere jobber which had purchased swaging taps from Bendix (Ex. A, I. 106). At the hearing on reconsideration of the anti-trust claim, it was determined that during and subsequent to the original trial, Bendix had licensed and was selling swaging taps to all its remaining competitors except re- spondent Balax and one other whose sales were found to be “not significant in amount”. (App. B, pp. 41-42) By extracting covenants never to challenge the validity of the Bendix patents from licensees and from purchasers all of whom are tap manufacturers, Bendix effectively silenced all parties who would have had the motivation and the means to challenge the validity of Bendix’s pat- ents. That Bendix had possession of the evidence of the invalidity of its patents when it secured such agreements and at least one legal opinion of their invalidity, adds proof that the dominant purpose of these agreements was to maintain control of the swaging tap market by exclud- ing undesired competitors. The success of the scheme is apparent from the fact that Bendix and its licensees sold between 77% and 91% of all of the swaging taps sold in the United States prior to 1970, the remainder being sold by Balax. (App. A, p. 25; 471 F. 2d at 163) aia bh oes ch ae co of 10 As Bendix-Besly held out to one prospective licensee in 1958: “As I pointed out to you, I hope not only for the sake of Besly but for the sake of competitors whom we know and respect that we have a valid patent, one that will stand up to any legal test. If this proves to be the case, we can hope that all those who operate under the license will enjoy increased profits through Promotion of taps made to this design.” (Ex. A, p. 272)* To another prospective licensee, Pratt & Whitney, Bendix-Besly in 1959 threatened that “* * * a legal en- tanglement is highly expensive and drawn — >” and volunteered advice as to how any future accusations of collusion might be dealt with: “Regarding accusations of collusion, if our own com- pany were put in this position I most certainly think that we would merely ask a competitor to take all the evidence in our possession and let him foot the bill for the legal proceeding. In this type of a situa- tion we would merely point out the fact that we did not feel that the evidence we had was strong enough to support our position in dealing with legal frailties, and we simply signed a license agreement rather than engage in a legal controversy in which the results were uncertain at best. I feel that think- ing along a line such as this would substantiate any agreement that the two firms might enter into.” (Ex. A, p. 274) Pratt & Whitney subsequently signed the requirement purchase agreement covenanting never to challenge the validity of Bendix’s patents notwithstanding the advice of its patent attorney that “ * * * it is his considered opin- ion that your [Bendix] reissue patent * * *” is invalid, citing the German petty patent no. 1,455,626 registered *“Ex. A” refers to Exhibits appendix in the court below. 11 on January 9, 1939 (Ex. A, II. 278) on the basis of which Bendix’s reissue patent was ultimately declared invalid. Bendix also sought to extend the term of its monopoly via the patent license route. It sought a license under Balax’s patent for an improved thread configuration on a tap so that Bendix “ * * * could extend the life of the X-Press tap in terms of our licensees already established.” (A. 303) It did not desire any competition from Balax, however. Balax was offered a license under the Bendix patents, but only on the condition that the Balax tap would be sold “ * * * at the higher price which their superior performance justified and [Balax] would not offer conventional X-Press [Bendix-Besly] tap.” (Ex. A, I. 181) (A. 309) Bendix “ * * * of course, * * * did not want” Balax to get into the tap business. (A. 304-305) And, Bendix had to obtain the permission of its other licensees to make its arrogant offer to Balax because “* * * we [Bendix] had to explain to them that Van Vleet’s [Balax’s] operation was a unique license, that we did not regard this as a device for putting new competi- tion into business on the X-Press [Bendix] tap; that the reason why we were granting him the license was so that he could go ahead and manufacture and sell taps under the Besly [ Bendix] patent and, therefore, prove the value of his machine.” (A. 310) When Balax refused the restricted license and began marketing its swaging taps, Bendix-Besly withdrew its offer and “initiated this suit against Balax because the “* * * ‘Balax’ Tap, made in a small shop near Milwau- kee, poses more of a competitive threat in the market ***” (App. B, p. 45). The Court of Appeals found that this case “* * * jn- volves primarily the scope of the retroactive application Spon rat ering SLATER Oe 12 of Lear, Inc. v. Adkins, 395 U.S. 653 (1969).” (App. A, p. 1, 471 F.2d at 151) This conclusion was based upon the Court’s declarations that: (1) “In 1950 the Supreme Court held that ‘the gen- eral rule’ was that a patent licensee operating under a license agreement was estopped to deny the validity of his licensors patent in a suit for royalties. dutomatic Radio Manufacturing Co. v. Hazeltine Research, Inc., 339 U.S. 827, 836.” (App. A, p. 10, 471 F. 2d at 155) (2) “All of the licensee restrictions imposed by the plaintiff (Bendix) occurred subsequent to 1950.” Ibid. (3) “The plaintiff commenced its infringement suit in 1964.” Ibid. (4) “The District Court’s judgment was rendered in 1968.” Ibid. (5) “On June 16, 1969 the Supreme Court decided Lear, Inc. v. Adkins, 395 U.S. 653 holding that a licensee is not estopped to enterpose the valid- ity of the licensed patent as a defense to an action by the patentee-licensor or to enforce the license agreement. The Court expressly overruled its 1950 holding to contrary.” Ibid. (6) “The District Courts apparently assumed that Lear was relevant and that the license restric- tions constituted per se antitrust violations in light of Lear.” Ibid. After an analysis of the criteria for retroactive appli- cation of precedents, the Court of Appeals held, “We conclude, therefore, that Lear should not be applied retroactively to this case in its damage aspects. Conse- quently, the portion of plaintiff's [ Bendix’s] license agree- ments providing that the licensee ‘will not contest the validity of any patent which is now a part of this agree- 13 ment during the life of this agreement’ did not constitute a misuse of the patent.” (App. A, p. 15, 471 F.2d at 158) However, the decision of this court controlling the facts of this case was not Automatic Radio Co. v. Hazel- tine, supra, but rather the decision in Pope Manufactur- ing Company v. Gormully, 144 U.S. 224 (1892). The Automatic Radio case, like the Lear decision which over- ruled it, dealt with an estoppel implied by state law. By contrast, the Pope v. Gormully case like the present case deals with expressed covenants prohibiting licensees from challenging the validity of patents, as to which the Lear decision changed nothing, as this Court recently held in United States v. Glaxo Group Limited et al (1973), — U.S. —, 35 L. Ed. 2d 104, at 110: “** * in the tradition of Pope Mfg. Co. v. Gormully, 144 U.S. 224, 234, 36 L.Ed. 414, 12 S.Ct. 632 (1892): ‘It is as important to the public that com- petition should not be repressed by worthless patents, or that the patentee of a really valuable invention should be protected in his monopoly .. .,’ a view most recently echoed in Lear v. Adkins, 395 U.S. 653, 670, 23 L. Ed. 2d 610, 895 S. Ct. 1902 (1969).” [Italics added ] This Court held in Pope v. Gormully, supra, that a covenant not to challenge the validity of the patent is a creature of contract law, and not a part of the monopoly granted under the patent laws, and hence a convenant not to challenge the validity of licensed patents is not immune from the laws voiding illegal agreements and agreements against public policy or in restraint of trade. 144 U.S. at 223. The Automatic Radio Company case did not create such immunization, nor did the Lear de- cision change that law. Ironically, the effect of the effort ae a ETS INGEN Oe ERI IRR a 8 OF 14 of the Court of Appeals to prevent retroactive applica- tion of Lear was to apply Lear retroactively to legitimize a contract and combination that was illegal before Lear. In United States v. Singer Manufacturing Company, 374 U.S. 174 (1963), Singer and two European manu- facturers of sewing machines entered into a series of cross licenses of patents covering cam operated zigzag mecha- nisms for sewing machines, for the dominant purpose of destroying the competition of Japanese sales of the in- fringing machines in the United States. This Court, citing United States v. Masonite, 316 U.S. 265 (1942), held, “* * * it ‘is equally well settled that the Possession of a valid patent or patents does not give the patentee any exemption from the provisions of the Sherman Act be- yond the limits of the patent monopoly.” 374 U.S. at 196. The Singer case, like the present case, involved a series of license agreements that appeared individually to be innocuous, but Singer and its conspirators used these agreements to combine their patents in a way that gave them more market leverage than the individual patents alone could have provided to effectuate an illegal dom- inant purpose. In Singer the dominant purpose was to eliminate Japanese competition. In the present case the dominant purpose was to eliminate competition from all but those “competitors whom we know and respect” (Ex. A, I. 272). In Singer they combined valid patents. In this case, Bendix-Besly combined with its friendly competitors to confer patentability and hence monopoly on an unpatentable product. Such contracts, combinations and conspiracies are not now and never have been beyond the operation of the general laws, including the anti- trust laws. The decision of the Court of Appeals, apply- ing Lear retroactively to legitimize such contracts, com- 15 binations and conspiracies is no less erroneous than a retroactive application of Lear to create an antitrust vio- lation. While, prior to Lear, the right to license under the patent laws might have afforded basis for the legitimate inclusion in patent licenses of covenants not to contest the validity of patents, no such justification existed for such covenants in ordinary contracts of purchase even of patented products. Requirements contracts containing the covenant were entered into by Bendix with four major competing tap manufacturers. (A. 104, 107, 109, 119). A fifth such covenant was extracted from a mere jobber as considera- tion for the sale to him of Bendix swaging taps (A. 106). The economic leverage of these agreements pivots on the industry wide practice of using only exclusive dis- tributors; that is, distributors that sell only the products of a single manufacturer. (A. 567) The crucial impor- tance of these agreements to Bendix emerges from the fact that when these manufacturers were induced to sign these agreements, Bendix knew of its own prior use of two of its alleged inventions and the prior art upon which its third patent was finally declared invalid in this action — and had received the opinion of at least one patent at- torney that its patents were in fact invalid. (Ex. A. 273) After they entered into these agreements, the competing manufacturers had no choice but to purchase their en- tire requirements solely from Bendix or its licensees. Should they attempt to purchase taps from another source or to enter upon the manufacture of them for sale to their distributor without paying tribute to Bendix-Besly, they faced, in addition to a suit on the contract itself, the threat of an infringement suit which they could not win = a | 16 and Bendix could not lose, They had no infringement defense; all known swaging taps infringed the Bendix patents. And, by the contracts, they had bargained away the right to contest the validity of the Bendix de facto invalid patents. Other swaging tap manufacturers, such as Balax, could not sell swaging taps directly to the distributors of those competitors since all of the distributors are bound to handle only one manufacturer’s products. These manu- facturers who entered into requirements purchase agree- ments together with Bendix and its licensees sell in excess of 80% of all of the taps sold and hence their dis- tributors represent the only access to over 80% of the market and these are effectively foreclosed to any and all manufacturers of swaging taps except Bendix-Besly and its licensees. While the Court of Appeals held that these require- ments purchase contracts and the jobber contract were “purchase licenses”, and therefore the covenants were immune from the antitrust laws prior to this Court’s de- cision in Lear v. Adkins, supra, the purchase agreements alone do not grant any rights to or under the Bendix patents. Involved here are simple buy and sell contracts which the seller conditioned upon the buyers’ agreements to waive the statutory defenses granted to the buyer in the event that the seller should charge the buyer with in- fringement of the seller’s patents; and nothing decided in Lear v. Adkins, supra, could affect these purchase agree- ments. The precedents governing these requirements purchase agreements include neither the Automatic Radio case, nor the Lear case, but instead are found in this Court’s 17 decisions in United States v. Masonite Corporation, et al., 316 U.S. 265 (1942); Northern Pacific Railway Co., et al. v. United States, 356 U.S. 1 (1958); Klor’s Inc. v. Broadway-Hale Stores, Inc., et al., 359 U.S. 207 (1959) ; Fortner Enterprises Inc. v. United States Steel Corp., et al., 394 U.S. 495 (1969). In the Masonite case, supra, Masonite held patents on high density hardboard made from wood chips (316 U.S. at. 268) and Masonite entered into agency agree- ments with competing manufacturers of building ma- terials (316 U.S. at 269-270) making those competitors del credere factors of Masonite to sell Masonite’s pat- ented hardboard at prices dictated by Masonite (316 U.S. at 271-272). Masonite’s competitors, similarly to the Bendix-Besly’s competitors, expressly acknowledged the validity of Masonite’s patents (316 U.S. at 271) for the term of the agreement which was the life of the last patent to issue (316 U.S. at 273). Masonite, like Bendix- Besly, gave its contracting competitors an option to take a license (316 U.S. at 272). In both cases, the competi- tors all knew that the others had signed similar agree- ments. The Masonite case differs from this case in that (1) the dominant purpose of the Masonite agreements was to fix prices,” whereas the dominant purpose of the Bendix-Besly purchase agreements was to exclude com- petition, and (2) Masonite’s competitors became del ELLE EIN LI LECTED EE ty credere factors and Bendix-Besly’s were simple require- — ments purchasers. This Court held that Masonite vio- lated Section 1 of the Sherman Act, on the basis that: “The owner of a patent cannot extend his statutory grant by contract or agreement. A patent affords no 5Bendix-Besly and its licensees and purchasing competitors main- tained price uniformity (App. B, pp. 33-34, 45, 471 F.2d 160) but the Court of Appeals held that Balax was not hurt by the practice, (Ibid.). 18 immunity for a monopoly not fairly or plainly with- in the grant. * * * ‘[public policy] equally forbids the use of the patent to secure an exclusive right or limited monopoly not granted by the Patent Office and which is contrary to public policy to grant.’ Be- yond the limited monopoly which is granted, the arrangements by which the patent is utilized are sub- ject to the general law.” 316 U.S. at 277. “But where he [a patentee] utilizes the sales orga- nization of another business — a business with which he has no intimate relationship — quite different problems are posed since such a regimentation of a marketing system is peculiarly susceptible to the restraints of trade which the Sherman .Act condemns.” 316 U.S. at 279. As Justice Douglas observed in his dissenting opinion in Automatic Radio Co., Inc. v. Hazeltine Research, Inc., 339 U.S. 827 at 839 (1950), “But what worse enlarge- ment of monopoly is there than the attachment of a patent to an unpatentable article? When we consider the con- stitutional standard, what greater public harm than that is there in the patent system?” Just as Bendix here conditioned the sale of its swaging taps upon the agreement of the purchasers not to chal- lenge the presumptive monopolies Bendix had obtained covering swaging taps, so in Northern Pacific Railway Co. et al. v. United States, 356 U.S. 1 (1957), the North- ern Pacific Railroad Company conditioned the sale or lease of its land upon the covenant by the grantee or leasee to ship over Northern Pacific Railroad Company all commodities produced or manufactured on the land, provided the rates or services of the Northern Pacific Railroad were equal to those competing carriers. There this Court defined a tying arrangement: ‘“* * * as an agreement by a party to sell one product but only on the condition that the buyer also pur- 19 chases a different (or tied) product, or at least agrees that he will not purchase that product from another supplier. * * * Indeed ‘tying agreements serve hard- ly any purpose beyond the suppression of competi- tion.’ * * * They are unreasonable in and of them- selves whenever a party has sufficient economic pow- er with respect to the tying product to appreciably restrain free competition in the market for the tied product and ‘not insubstantial’ amount of interstate commerce is affected.” 356 U.S. at 5-6. Here a more subtle, but nevertheless effective tie-in arrangement exists in the form of the requirements pur- chase contracts. The purchasers under those contracts were of necessity agreeing not to purchase swaging taps from other sources during the life of Bendix-Besly’s patents as a condition to the right to purchase such taps from Bendix-Besly. The contracts precluded them from purchases from any other source even had they been willing to face expensive patent litigation by so doing. As the record discloses, all known swaging taps on the market infringe one or more of the Bendix-Besly patents. Thus, when the purchasers bargained away their defense of invalidity of Bendix-Besly’s patents, they bargained away their only defense to an injunction against selling taps from any other source during the life of Bendix- Besly’s patents. Since this violation is based upon Section | of the Sherman Act, monopoly power in Bendix-Besly is not a necessary element. Regardless of the market definition adopted, Bendix-Besly holds sufficient economic power in its patents that cover all known swaging taps, for as this Court held in Fortner Enterprises Inc. v. United States Steel Corp. et al., 394 U.S. 495 at 502-503 (1969) : “The standard of ‘sufficient economic power’ does not, as the District Court held, require that the f i Sy » t y , 27m 20 defendant have a monopoly or even a dominant Pposi- tion throughout the market for the tying product. Our tie-in cases have made unmistakably clear that the economic power over the tying product can be sufficient even though the power falls far short of dominance and even though the power exists only with respect to some of the buyers in the market.” It is true that Balax, a small infant corporation with only one product, swaging taps, is insignificant in the cutting tool industry and that the elimination of Balax would not have affected the economy, but those facts do not deprive Balax of the protection of the antitrust laws, for as this Court held in Klor’s, Inc. v. Broadway- Hale Stores, Inc., et al., 359 U.S. 207 at 213-214 (1959): “It [the boycott] interferes with the natural flow of interstate commerce. It clearly has, by its ‘nature’ and ‘character,’ a ‘monopolistic tendency.’ As such it is not to be tolerated merely because the victim is just one merchant whose business is so small that his destruction makes little difference to the economy. Monopoly can as surely thrive by the elimination of such small businessmen, one at a time, as it can by driving them out in large groups. In recognition of this fact the Sherman Act has consistently been read to forbid all contracts and combinations ‘which’ tend to create a monopoly,’ whether ‘the tendency is a creeping one’ or ‘one that proceeds at full gallop.’” B. The definition of “* * * any part of the trade or commerce among the several States, * * * in §2 of the Sherman Act to include estimated sales that may be made in the future creates a loophole in Section 2 through which monopolists will escape the Sher- man Act for want of sufficient market dominence. In determining that “* * * the question of potential monopoly power [by Bendix] is exceedingly delicately ere : \ eae ala Se ES TL TE TD 21 balanced on several fine lines * * *”, the Court of Ap- peals adopted the hypothesis “ * * * that 50% of the $60 million per year tap market is potentially interchange- able between cutting and swaging taps and that after an actual interchange of the $30 million market would de- crease to $6 million by virtue of the relative inexpensive- ness of the total volume of needed swaging taps, * * *” and concluded that “ * * * the combined market position of plaintiff [ Bendix] and its licensee is 31.2%.” [empha- sis added ] (App. A, pp. 22, 23,471 F.2d at 161) However, the Court of Appeals also found that in actual sales, in 1970 Bendix and its licensees had 74% of the market, in 1969 77%, in 1968 80%, in 1967 83%, in 1966 85%, in 1965 89% and 91% in 1964, the year this action was filed. (App. A, p. 25, 471 F. 2d at 163) Thus in determining market control under §2 of the Sherman Act in this case, the Court of Appeals compared actual sales with a potential market that it estimated would exist at some undetermined time in the future— approximately three times as large as the actual market measured in sales actually made. Further, following the potential market theory of the Court of Appeals, Bendix- Besly and its licensees would have had but one-third of the “potential” market had they captured 100% of the actual swaging taps sales by driving Balax out of the market place. (Bendix-Besly nearly achieved that 100%. for Balax was the only competing manufacturer that sold any significant amount of swaging taps from the time this action was brought in June of 1964 until this Court de- nied Bendix-Besly’s petition for certiorari in June 1970.) Hence, notwithstanding the fact that Bendix-Besly and its licensees would have been the only sellers in the mar- ket, their “potential monopoly power” would have been “exceedingly delicately balanced on several fine lines” 22 according to the decision below. (App. A, p. 24, 471 F. 2d at 163) In short, any monopolist in a growing market can avoid Section 2 of the Sherman Act in the Seventh Cir- cuit by showing the Court of Appeals that the market at some future date might be more than three times the present actual sales. Although the Court of Appeals seemed to accept the swaging tap market as the relevant market, it also criti- cized the trial court’s findings on that issue stating, “This market definition ignored the evidence in the record of interchangeability among Swaging and cutting taps.” (App. A, p. 21, 471 F.2d at 161) The Court of Ap- peals also relied upon what it characterized as “the de- fendant’s [ Balax’s] own admissions that swaging taps are ‘reasonably interchangeable’ with approximately 50% of the cutting tap market.” However, there is no such evi- dence and certainly Balax made no such admissions. What all of the evidence proves and Balax argued is that swag- ing taps are “superseding” cutting taps; that is, driving cutting taps out of the market (A. 482-483, 533-535, 578- 580, 665-666), in the same way that diesel-electric engines superseded steam engines on the railroads, and jet engines superseded reciprocating propeller engines in commercial planes. Swaging taps have no more competition from cutting taps than diesel-electric and jet engines have from their outmoded predecessors. Indeed, the record shows that the sales of swaging taps were serenely unaffected when the price of cutting taps was cut in half (A. 578-580, 665-666). Hence, to the extent that the Court of Appeals was influenced by what it thought to be “interchange- ability”, it was misled. 23 The market involved here is the swaging tap market, which is a submarket of the internal threading tool mar- ket. Brown Shoe Co., Inc. v. United States, 370 U.S. 294 at 325 (1962) ; United States v. DuPont & Co., 353 U.S 586 at 593-594, 77 S. Ct. 872, 1 L. Ed. 2d 1057 (1957) ; United States v. Grinnell Corp., 384 U.S. 563, 572-573, 86 S. Ct. 1698, 16 L. Ed. 2d 778, 787-788. Moreover, with control of 77% to 91% of that submarket during the years involved, there can be little room for doubt that Bendix-Besly and its licensees had monopoly control. Cf. United States v. Grinnell Corp., supra, 384 U.S. at 571, 16 L. Ed. 2d at 786. . C. The decision of the Court of Appeals holding that Balax failed to prove the injury required by §4 of the Clayton Act directly conflicts with this court’s decision in Zenith Radio Corp. v. Hazeltine Re- search, Inc. et al, 395 U.S. 100 (1969) and effectively denies the remedies of the antitrust laws to newly formed manufacturing businesses. Balax, Inc. was formed by petitioner John M. Van Vleet in November of 1959 for the purpose of exploiting Mr. Van Vleet’s inventions relating to an improved tap thread design and to a new tap thread grinding machine that automatically grinds threads with the corrected con- figuration. Balax, Inc. went into commercial production for the first time in 1962 having as its only product swag- ing taps and employing the Van Vleet inventions. The tap with the improved thread may be described as an axially balanced or “Balax” tap. (App. B, p. 36, Ex. A, I. 144) As soon as Balax, Inc. began marketing its taps, Bendix- Besly responded by charging Balax with infringement of its patents and caused Balax’s supplier of plastic pack- erie» hs SS en cs 24 ages for its taps to breach its contract with Balax by threatening the supplier. In the two-year interval be- tween the infringement charge and the beginning of this suit Bendix-Besly signed up another major tap manu- facturer, Jarvis (Ex. A 32-42) as a licensee and, immedi- ately before filing this action, finally succeeded in obtain- ing a covenant never to challenge the validity of Bendix- Besly patents from Pratt & Whitney (Ex. A, II. 199-200) — which possessed evidence of the invalidity of Bendix- Besly’s patents and an opinion of its attorney that the Bendix-Besly patents were invalid. (Ex. A, I. 273) The filing of this action was well known in the market place where potential customers for resale and users could contemplate potential liability to Bendix-Besly should Bendix prevail in this action. (A. 537-538) Balax, Inc. survived and continued to market its swaging tap with increasing sales each year, notwithstanding all of Bendix-Besly’s efforts to suppress Balax’s business, includ- ing the massive burden on the limited assets of the infant Balax as well as the diversion of a substantial portion of its management and engineering energies required for the defense of the patent action (A. 514-516, 525-527). Indeed, Balax, Inc. was the only significant competition to Bendix-Besly and its licensees in the swaging tap mar- ket. Balax accomplished this feat by selling its swaging taps to five manufacturers of cutting taps who resold the swaging taps through their distributors along with their cutting taps (A. 482), and by obtaining thirty-five dis- tributors (A. 670) — compared to Bendix-Besly’s five hundred (A. 573) — who sold a small portion of Balax’s production directly to users. The activities and contracts of Bendix-Besly closed all other avenues of growth to Balax. At the trial in Jan- 25 uary of 1968 the president of Balax, John Van Vleet, testified that Balax midwest sales were approximately 60% of what they would have been but for Bendix’s ac- tivities in attempting to enforce patents against Balax and its other harassments of Balax (A. 511). Also at the trial in 1968, Balax’s sales manager testified that in his judgment sales by Balax were at the national level only 50% of what they would have been but for those activities of Bendix. (A. 537) Balax’s vice-president also testified that the diversion of assets and executive energies occasioned by this law suit prevented Balax from broad- ening its product line and from acquiring the necessary capital equipment to operate as efficiently as it could operate. (A. 525-528) At the hearing upon reconsidera- tion on November 9th and 10th, 1970, as to injury to counterclaim plaintiff, the vice-president of Balax tes- tified further as to the limitations imposed upon effi- ciency and productivity by the inability of Balax to ob- tain financing which was a direct result of this action (A. 626-640, 656). The vice-president of the only finan- cial institution that would provide any financial aid to Balax, testified that his bank could not provide a letter of credit to Balax to secure the cost bond for the first appeal in this case without the personal guarantee of stockholders and directors of Balax together with a se- curity agreement covering all of Balax’s assets and re- ceivables. (A. 618-620) Hence Balax could not broaden its product line, to include cutting taps. Without a com- plete line including cutting taps, Balax could not obtain adequate distribution since tap manufacturers use exclu- sive distributors who handle but one manufacturer’s prod- uct line and distributors want a complete line to sell (A. 537, 567). And Balax was foreclosed from selling swaging taps to the tap manufacturers who account for between 26 80% and 90% of the cutting taps sold in the United States. They had signed contracts containing covenants never to challenge the validity of the Bendix-Besly in- valid patents relating to swaging taps. Nevertheless, the Court of Appeals, reversing the Dis- trict Court, noted that Balax’s business, instead of failing, ““* * * has steadily increased and would increase more if it carried cutting taps, * * *” and held “* * * that defen- dants [ Balax and Van Vleet] did not prove any recover- able damages, and that assuming or speculating that dam- ages were incurred by defendants, they failed to prove that such damages were the proximate result of plaintiff's actions.” Let it be emphasized here that the issue of the quantum of damages has not yet been tried, it having been set aside by stipulation for separate trial, and that this Bendix appeal was taken only under 28 USC 1292(b) from the District Court’s finding of liability in Bendix-Besly. The foregoing facts and evidence are governed by this Court’s decision in Zenith Radio Corp. v. Hazeltine Re- search, Inc., et al., 395 U.S. 100 (1969). Hazeltine sued Zenith for infringement of patents in a pool, called “CRPL” controlled by Hazeltine and others. CRPL would package license its patents only to parties manu- facturing in Canada, and Zenith sought to manufacture in the United States for export to Canada. Hence, Zenith was denied a license by the pool. Nevertheless Zenith at- tempted to export to Canada and encountered harassing and intimidating activities by CRPL culminating in Hazeltine’s infringement action, for the defense of which Zenith was awarded three times its attorneys fees and costs as antitrust damages. Zenith produced its president and one of its vice- presidents both of whom testified that but for the ac- a » ‘ chiiehaiiaheatiaaminiaal tetinitetaniaiian aes tivities of the pool Zenith would have had 16% of the radio and television market in Canada and instead had only 3 to 5%. Zenith also produced one of its accountants who, based upon the testimony of the president and vice- president, arithmetically calculated the dollar value of what Zenith’s Canadian market could have been and hence of Zenith’s dollar value loss. The testimony of Ze- nith’s president and vice-president was premised on the fact that Zenith had 16% of the U.S. market. (395 U.S. at 116) The evidence of the injury offered by Zenith in that case and Balax in this case is identical, except in three circumstances. First, Balax, unlike Zenith, did not have an established business when the Bendix antitrust activ- ities began. Instead Balax from its very commercial in- ception, from the sale of its first products, encountered the conspiracy and combination in restraint of trade and attempts to monopolize carried out by Bendix-Besly. Therefore Balax has no bench mark of free competitive sales in any market to rely upon. Rather it is forced to base its estimates upon the distribution network it might have had, but for Bendix-Besly’s activities, as compared with the success that Balax enjoyed where it was able to ob- tain distributors or access to distributors. Secondly, unlike in Zenith the Balax witnesses were not cross-examined, the Balax testimony was not rebutted and has not been challenged in any respect by Bendix-Besly in the course of this litigation. Third, Zenith placed one of its account- ants on the stand to carry out the arithmetical calcula- tion from the evidence given by its president and vice- president. Balax simply made a record of the essential facts as to Balax’s actual sales together with the above mentioned percentage of the portion of the market from 28 which it was excluded. However the arithmetic opera- tions used to calculate the dollar sales loss as a result of the exclusion are elementary and subject to judicial notice. Moreover, at this stage in the proceedings, the damage issue being set aside for separate trial, the pre- cise quantum of damages is not even involved. The only need for proving damage at this point is to prove the existence of an injury that is not de minimus as required by Section 4 of the Clayton Act. Balax per- force adopted a more conservative measure of damages than Zenith because Balax has not had the opportunity to compete in a free market. Hence Balax claims only those sales it has demonstrated its ability to obtain in the market restrained by Bendix and its licensees. If Balax’s evidence is imprecise, the cause of the im- precision, therefore, lies not with Balax, but with the activities of Bendix-Besly. As this Court stated in revers- ing the Seventh Circuit Court of Appeals in Bigelow, et al. v. RKO Radio Pictures, Inc., et al. (1946), 327 U.S. 251 at 265, “The most elementary conceptions of justice and public policy require that the wrongdoer shall bear the risk of the uncertainty which his own wrong has created.” In this connection the statement of the Court of Appeals that Balax’s “* * * share of the swaging tap market in- creased at * * * the expense of Besly’s * * *” (App. A, p. 25) deserves analysis. In every year, but two, for which com- plete annual sales figures are of record, i.e., 1957 through 1969, Bendix-Besly’s sales steadily increased. (Ex. A, 120, 264, 265) The sales of the licensees fluctuated more, but also showed a steady growth curve. (A. 121, 265) Balax’s sales grew at a faster rate than those of Bendix-Besly and its licensees during the same years, but Balax’s total 29 sales were much much smaller and hence could show a greater percentage rate of growth with lesser absolute increases. Even more significant is the fact that the parties were operating in a market which had a potential of three or more times the total actual sales, and the market area that Balax was able to penetrate had not yet been exploited by Bendix-Besly. The market of sig- nificance here was that from which Balax was excluded by the predatory practices of Bendix-Besly. Finally, the Court of Appeals found lack of causal connection between Balax’s injury and Bendix-Besly’s antitrust violation by dissecting and compartmentalizing Bendix-Besly’s wrongful acts. First the Court of Appeals artificially bissected the terms of Bendix-Besly’s cove- nants shielding its patents from challenge into the por- tions extending for lives of the contracts, which it de- clared to be immune from the antitrust laws, and the portions surviving termination of the contracts. (App. A, p. 15) The latter, that Court declared, could have been a misuse (App. A, p. 16, 471 F. 2d 158-159), but found no specific damage evidence causally connected only to the covenant terms that would outlive the contracts (App. A, pp. 17, 20, 471 F. 2d 159-160). This Court prohibited such techniques in Continental Ore Co., et al v. Union Carbide & Carbon Corp., et al (1962) 370 U.S. 690 at 698-699 : “In cases such as this, plaintiffs should be given full benefit of their proof without tightly compartmental- izing the various factual components and wiping the slate clean after scrutiny of each.” The trial court found sufficient injury to Balax result- ing from Bendix-Besly’s anti-trust violations, including the bringing of this suit, to satisfy Section 4 of the Clayton Act. The Court of Appeals overriding judgment — “as it had to be if its no-injury rationale were to meet claims S & 4 RAY ESSN TC ve 30 of damage” — was that Balax would have done no more business if Bendix-Besly had not contractually imposed a patent monopoly covering the entire market upon the unpatentable swaging tap. The Court of Appeals was clearly in error. Cf. Zenith Radio Corp. v. Hazeltine Research, Inc., et al (1969) 395 U.S. 100 at 118. CONCLUSION Because the Court of Appeals has approved a unique misuse of the patent system, has created an important new precedent defining relevant market for antitrust pur- poses in a manner such that it can rarely be dominated, has improperly applied this Court’s decision in the im- portant Lear case retroactively to legitimatize previously illegal contracts and combinations, and has disobeyed this Court’s instructions most recently expressed in the Zenith case regarding proof of injury in Section 4 of the Clayton Act, petitioners urge the Court to grant this Petition for Certiorari. Respectfully submitted, EDWARD A. HAIGHT JOHN W. HoFeE.pt MAXWELL H. HEerriorr THOMAS O. KLOEHN Counsel for Petitioners Sh te ne sheen ms re " figs ye % m i mS , tr Wane at 2: OP ths ay 5 Uae ye Ac Ne Lee aka Grigg SH ' LOS DAD no TRS APPENDIX A. The BENDIX CORPORATION and Sellew Corporation, Plaintiffs-Appellants, Vv. BALAX, INC. and John M. Van Vleet, Defendants-Appellees. No. 71-1483. United States Court of Appeals, Seventh Circuit. Argued Sept. 12, 1972. Nov. 29, 1972. * * * Before HASTINGS, Senior Circuit Judge, and CUM- MINGS and SPRECHER, Circuit Judges. SPRECHER, Circuit Judge. This appeal involves primarily the scope of the retro- active application of Lear, Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1886, 23 L. Ed. 2d 610 (1969). I This suit was commenced on June 17, 1964, seeking to enjoin, and for an accounting of profits and damages resulting from, defendants’ alleged infringement of three 2 patents owned by the plaintiff relating to a fluteless swag- ing tap. Before trial, plaintiff withdrew its patent No. 2,991,491, admitting its invalidity due to plaintiff's own prior public use. The trial court held plaintiff’s patent Re. 24,572 valid and infringed and patent No. 3,050,755 infringed but invalid for prior public use by plaintiff. It dismissed defendant's antitrust counterclaim. Besly-Welles Corp. v. Balax, Inc., 291 F. Supp. 328 (E.D. Wis. 1968). Upon appeal, this Court affirmed the judgment of invalidity of No. 3,050,755 and reversed the judgment of the validity of Re. 24,572. Bendix Corp. v. Balax, Inc., 421 F.2d 809 (7th Cir.), cert. denied, 399 U.S. 911, 90 S. Ct. 2203, 26 L. Ed. 2d 562 (1970) 2 ?“A tap is a tool used to form threads on the cylindrical inner sur- face of a hole. A swaging tap forms threads by deforming the metal and displacing it into the form of the desired thread. A swaging tap, which forms no chips, is to be distinguished from a cutting tap which forms threads by cutting away the metal with cutting teeth. The swag- ing method is said to be more economical and easier to perform than the cutting method. Swaging taps have a longer life than cutting taps. They produce no metal chips. The costly and time consuming inspection and cleaning of the work after the job is completed is thus eliminated.” Bendix Corp. v. Balax, Inc., 421 F. 2d 809, 811 (7th Cir.), cert. denied, 399 U.S. 911, 90 S.Ct. 2203, 26 L. Ed. 2d 562 (1970). In order to produce a cutting tap, a fluted blank is needed on which to grind the threads. The machine needed to produce the fluted blank is rela- tively expensive. Swaging taps have no flutes (or parallel grooves) so that fluted blanks are not needed. Thus the maker of swaging taps needs only a thread grinding machine and not an expensive flute grind- ing machine. ? Suit was originally brought by Besly-Welles Corporation, an Illinois corporation, whose name was later changed to Sellew Corporation. In 1965, Besly-Welles Corporation, a Delaware corporation, was in- corporated as a wholly-owned subsidiary of the Bendix Corporation. The subject patents were transferred from the Illinois corporation to the Delaware corporation and the Bendix Corporation was substituted as a party in this case. | as en The Court vacated that part of the judgment dismissing defendants’ antitrust counterclaim in order to consider “the relevance, if any, of Lear.”* Upon remand, the district court concluded that the defendants had established their counterclaim and were entitled to judgment. The district court considered that this court’s statement that “the right to estop licensees from challenging a patent is not part of the ‘limited pro- tection’ afforded by the patent monopoly,” constituted the law of the case. Then, inasmuch as many of plain- tiff’s license agreements contained “a concession by the $This Court said at 421 F.2d 820, 821: “While it is true that a valid patent does afford some ‘limited pro- tection,’ including ‘the right to license others to manufacture the patent- ed tap,’ this is no answer to the thrust of defendants’ contention that the licensor may not thereby forever preclude the licensee from chal- — lenging the validity of the patent. By requiring such a condition in — the license or sales agreement, plaintiff may have placed itself in the position of unlawfully exceeding the protected area. “Further, subsequent to the judgment of the district court under con- sideration here, the Supreme Court in Lear, Inc. v. Adkins, 395 U.S. 653 (June 16, 1969), at 668-671, 89 S.Ct. 1902, 23 L. Ed. 2d 610 overruled the holding of Automatic Radio Manufacturing Co., Inc. v. Hazeltine Research, Inc., 339 U.S. 827, 836, 70 S. Cr. 894, 94 L. Ed. 1312 (1950), insofar as it invoked a legally implied estoppel to deny a licensee the right to challenge the validity of his licensor’s patent in a suit for the collection of royalties. * _ * “From all this we can only conclude that the right to estop licensees from challenging a patent is not part of the ‘limited protection’ afforded by the patent monopoly. Furthermore, the reason is that it creates a danger of unwarranted monopolization. Such danger may be even greater here than in the usual licensee-estoppel case for the reason that in the instant case the licensor sought to create an irrevocable estoppel, not one merely extending during the life of the licenses and sales agreements. “The parties did not address themselves to the relevance, if any, of Lear in the present appeal, and, of course, it could not have been con- sidered by the district court. Under these circumstances, we feel it should be first presented to the trial court for its consideration.” 4 contracting party either that it would not legally chal- lenge the Besly patent or that it acknowledged the pat- ent’s validity” and inasmuch as some of those concessions were to continue “during the life of this agreement or thereafter,” the district court concluded that “Besly had gained and retained control of a substantial portion of the swaging tap market.” Bendix Corp. v. Balax, Inc., 321 F. Supp. 1095, 1096 (E.D. Wis. 1971).* II The basic facts may be summarized as follows: Until 1950 a cutting tap was the only tool available in the United States for internal thread forming. In 1950 at least two manufacturers began making swaging taps. In 1957 the plaintiff commenced marketing its improved swaging tap in regard to which it eventually obtained three patents. Plaintiff's earliest swaging tap patent was issued in 1957 and reissued as Re. 24,572 on December 2, 1958. Patent No. 2,991,491 was issued on July 11, 1961. Patent No. 3,050,755 was issued on August 28, 1962. Defendant Balax was incorporated in 1959 and de- fendant Van Vleet has been its president since then. From May to November 1961, Van Vleet met and communi- cated with representatives of plaintiff, at which time *The district court said: “I find that in actual practice, Besly was able to, and did, monopolize the swaging tap market and improperly influence the pricing structure for the commodity. Besly was able to negotiate the royalty rate charged to licensees in a substantial portion of the market and was able to exert an excessive influence on pricing. Having obtained concessions as to the ‘validity’ of its now invalid patent, and having obtained waivers regarding judicial action, Besly was able to, and did, monopolize the swaging tap market. Besly’s opportunity to monopolize was enhanced by its having commenced actions against al- leged infringers or by threatening to so do.” Jd. wii 5 Van Vleet disclosed that he had been developing what he considered a superior type of swaging tap. The dis- cussions included the possibility of a cross-license agree- ment between Balax and plaintiff. Van Vleet took copi- ous notes of these discussions, which ended without any agreements being reached. Balax sold its first swaging tap on January 3, 1962, and later obtained a patent on its “no lead error” swaging tap. When plaintiff filed its complaint for infringement on June 17, 1964, it also charged that Balax and Van Vleet had appropriated plaintiff’s trade secrets. The district judge, after the original trial, found that the information disclosed by plaintiff to Van Vleet took great effort to develop, had value to plaintiff, and was claimed by plain- tiff to have been used by the defendants as a short cut to get into the swaging tap business. 291 F.Supp. at 344-346. Nevertheless, the district court “concluded that while the information disclosed by plaintiff constituted trade secrets, no confidential relationship existed between the parties.” 421 F.2d at 821. This Court affirmed the district court’s finding that the defendants were not liable for appropriation of plaintiff’s trade secrets. At the time the infringement suit was filed in 1964, plaintiff had license contracts with ten companies to act as either a manufacturing licensee or sales outlet. Several others were added prior to June 22, 1970, when the Su- preme Court denied a petition for certiorari from this Court’s opinion invalidating plaintiff's last patent. 399 U.S. 911, S.Ct. 2203, 26 L. Ed. 2d 562. At that time, plaintiff notified all of its licensees of the cancellation of their agreements. According to flow diagrams furnished by both plaintiff and defendants in their briefs, prior to June 22, 1970, 6 (1) plaintiff sold some of its kind of taps to distributors; (2) plaintiff sold other of its kind of taps to purchasing licensees who in turn sold them to other distributors; (3) plaintiff's manufacturing licensees manufactured plaintiff's kind of taps and sold them to other distributors; (+) defendant Balax sold its own patented kind of taps to other distributors; and (5) Balax’s licensed manufac- turers made Balax’s kind of taps and sold them to yet other distributors. Thus both plaintiff's and Balax’s re- spective kinds of swaging taps reached the hands of some of the approximately 20,000 independent distributors of swaging and cutting taps. These distributors, in turn, resold the taps to hundreds of thousands of machine shops and other tap users throughout the country. In seeking to support the judgment of the district court upholding their counterclaim, the defendants have relied primarily upon (1) the provisions of several of plaintiff's license agreements which provided substantially that “Li- censee agrees that it will not contest the validity of any patent which is now a part of this Agreement during the life of this Agreement and thereafter”; (2) the provisions of several of plaintiff's sales contracts wherein the tap pur- chaser acknowledged the validity of the underlying pat- ent or patents without limiting the acknowledgment to the life of the sales arrangement; (3) the bringing or threatening to bring of patent infringement suits by the plaintiff; and (+) the granting of nonexclusive licenses and the exaction of royalties by plaintiff as consideration for not bringing infringement suits. III In the prior appeal, Judge Hastings, speaking for this Court and after pointing out that defendants’ ee, | 7 counterclaim charged two violations of federal antitrust laws, the first of which was “illegal procurement and en- forcement of patents” under the doctrine of fraud-prac- ticed-on-the-patent-office of Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 86 S. Ct. 347, 15 L. Ed. 2d 247 (1965), said at 421 F. 2d 819: “The district court specifically found that defen- dants had not met their burden of proving fraud on the patent office by clear and convincing evidence as required in Armour & Co. v. Wilson & Co., 7 Cir., 274 F. 2d 143, 148 (1960). Our examination of the record leads us to conclude that such finding is not clearly erroneous and thus we accept it. According- ly, the conclusion of the district court that this claim of antitrust violation is without merit should be approved.” This conclusion constituted the law of the case and estab- lished that the invalidity of the plaintiff's patent was the result of an error of judgment by the patent office based upon good faith applications by the plaintiff. Hence, the fact of invalidity has no probative value in the case in attempting to establish any antitrust violation. The defendants’ second contention of plaintiff's viola- tion of Sections | and 2 of the Sherman Act, as analyzed by Judge Hastings in the first appeal, was that “even if all of plaintiff's patents were valid, plaintiff would be guilty . . . for the reason that they have misused their patents to extend the patent monopoly beyond the scope permitted by the Constitution and the Congress.” Jd. Every patent misuse does not constitute a per se antitrust violation,” excusing proof of precise damage or *“And if there was such patent misuse, it does not necessarily fol- low that the misuse embodies the ingredients of a violation of either §1 or §2 of the Sherman Act, ...” Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 140, 89 S. Ct. 1562, 1585, 23 L. Ed. 2d 129 (1969). Peay 8 foreclosing inquiry into reasonableness.° The Report of the Attorney General’s National Committee to Study the Antitrust Laws 254 (1955) concluded that “[f]rom some abuses of patent policy may flow consequences not drastic enough to meet antitrust prerequisites of effect on com- petition.”* 6 The causes and effects of per se antitrust violations were capsulated in Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 78 S. Ct. 514, 518, 2 L. Ed. 2d 545 (1958): “However, there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conlusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable — an inquiry so often wholly fruitless when undertaken. Among the practices which the courts have heretofore deemed to be unlawful in and of themselves are price fixing. United States v. Socony- Vacuum Oil Co., 310 U.S. 150, 210 [, 60 S.Ct. 811, 838, 84 L. Ed. 1129]; division of markets, United States v. Addyston Pipe & Steel Co., 6 Cir., 85 F. 271 [L.R.A. 122], affirmed 175 U.S. 211 [, 20 S. Ct. 96, 44 L. Ed. 136]; group boycotts, Fashion Originators’ Guild [of America] v. Federal Trade Comm., 312 U.S. 457 [, 61 S. Ct. 703, 85 L. Ed. 949] ; and tying arrangements, International Salt Co. v. United States, 332 U.S. 392 [, 68 S. Cr. 12, 92 L. Ed. 20].” 7“We reject the view that any violation of patent law necessarily violates the antitrust laws. From some abuses of patent policy may flow consequences not drastic enough to meet antitrust prerequisites of effect on competition. In addition, many patent abuses are more effec- tively curbed by simply denying equitable relief as a matter of patent policy. Holding every patent law transgression to be the same as an antitrust violation would, moreover, put the patent owner on a different footing than owners of other property subject to antitrust. For antitrust has its own measure of permissiveness and wrongful conduct. To say that action beyond the borders of the patent grant is a per se antitrust violation is to ignore the Supreme Court’s distinction between the variant statutory standards of the Sherman, Federal Trade Commission and Clayton Acts as well as to repudiate the body of interpretations distin- guishing between offenses unreasonable per se and those not.” 9 Therefore we must determine whether a patent misuse occurred and if so, its nature and whether it constituted an antitrust violation. IV Congress has made it clear that the exaction of a royalty and the granting of a non-exclusive license as consideration for not suing for infringement, or suing to prevent infringement, do not constitute, in and of them- selves, misuse of a patent.® As we indicated in the prior appeal and hold in this one, whether any antitrust viola- tion has occurred must be measured as though the plain- tiff’s patents were valid. Correlatively, an infringement suit does not become an antitrust violation because a pat- ent is held invalid.° The district court concluded that plaintiff monopolized the swaging tap market by, among other matters, “Ch jav- ing obtained concessions as to the ‘validity’ of its now invalid patent, and having obtained waivers regarding judicial action.” 321 F. Supp. at 1096." 8 Section 271(d) of the Patent Code provides that “No patent owner _ shall be . . . deemed guilty of misuse or illegal extension of the patent right by reason of his having done one or more of the following: (1) derived revenue from acts which if performed by another without his consent would constitute contributory infringement of the patent; (2) licensed or authorized another to perform acts which if performed without his consent would constitute contributory infringement of the patent; (3) sought to enforce his patent rights against infringement or contributory infringement.” 35 U.S.C. §271(d). ®35 U.S.C. §282: “A patent shall be presumed valid.” If this were not so every time a patent was declared invalid every action which had been taken in reliance upon it would be subject to damage suits. This in turn would make it too hazardous to ever seek a patent. 10 The language used by the plaintiff in several of its license agree- ments provided: “Licensee agrees that it will not contest the validity of any patent which is now a part of this agreement during the life of this agreement and thereafter.” 10 In 1950, the Supreme Court held that “the general rule” was that a patent licensee operating under a license agreement was estopped to deny the validity of his li- censor’s patent in a suit for royalties. Automatic Radio Manufacturing Co. v. Hazeltine Research, Inc., 339 U.S. 827, 836, 70 S. Ct. 894, 94 L. Ed. 1312. All of the licensee restrictions imposed by the plaintiff occurred subsequent to 1950. The plaintiff commenced its infringement suit in 1964. The district court’s first judgment was rendered in 1968. On June 16, 1969, the Supreme Court decided Lear, Inc. v. Adkins, 395 U.S. 653, 89 S. Ct. 1902, 23 L. Ed. 2d 610, holding that a licensee is not estopped to interpose the invalidity of the licensed patent as a defense to an action by the patentee-licensor to enforce the license agreement. The Court expressly overruled its 1950 hold- ing to the contrary.” Thereafter, we remanded this case to the district court to consider “the relevance, if any, of Lear.” 421 F.2d at 821. The district court apparently assumed that Lear was relevant and that the license restrictions constituted per se antitrust violations in the light of Lear. The court did not consider whether Lear is to be applied retroac- tively.” 11 The Court stated: “We are satisfied that Automatic Radio Manu- facturing Co. v. Hazeltine Research, Inc., . . . itself the product of a clouded history, should no longer be regarded as sound law with re- spect to its ‘estoppel’ holding, and that holding is now overruled.” Jd. at 671, 89S. Ct. at 1911. 12In an earlier opinion, the same district judge held that Lear was not to be retroactively applied. Kearney & Trecker Corp. v. Giddings & Lewjs, Inc., 306 F. Supp. 189, 201 (E.D. Wis. 1969). We reversed on other grounds, finding that a fraud had been committed on the patent office, that Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 86 S. Ct. 347, 15 L.Ed. 2d 247, applied and that the conduct there involved was “predatory.” 452 F. 2d 579, 599 (7th Cir. 1971). 11 Recently the Supreme Court in Chevron Oil Co. v. Huson, 404 U.S. 97, 106-107, 92 S. Ct. 349, 355, 30 L. Ed. 2d 296 (1971), summarized the factors to be considered in determining whether unconstitutional, noncriminal cases are to be applied nonretroactively™ as a matter of stare decisis: “In our cases dealing with the nonretroactivity question, we have generally considered three separate factors. First, the decision to be applied nonretroac- tively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied .. . or by deciding an issue of first impression whose resolution was not clearly fore- shadowed, ... Second, it has been stressed that ‘we must . . . weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retro- spective operation will further or retard its opera- tion.’ ... Finally, we have weighed the inequity im- posed by retroactive application, for ‘[w]here a de- cision of this Court could produce substantial in- equitable results. if applied retroactively, there is ample basis in our cases for avoiding the “injustice or hardship” by a holding of nonretroactivity.’” In Lear, there was an express overruling of a past precedent. Although the Court noted that “[]]ong be- fore Hazeltine was decided, the estoppel doctrine had been so eroded that it could no longer be considered the ‘general rule’” (395 U.S. at 664, 89 S.Ct. at 1908), nevertheless in Hazeltine the Court characterized it as 13 The Court quoted the basic notion from Griffin v. Illinois, 351 U.S. 12, 26, 76 S. Ct. 585, 594, 100 L. Ed. 891 (Frankfurter, J., concurring in judgment) that “[|w]e should not indulge in the fiction that the law now announced has always been the law. . . .” Jd. at 107, 92 S.Ct. at 356. 12 the general rule."* Whether Hazeltine was “clear past precedent” to the Supreme Court in 1971, the unqualified pronouncement in that case undoubtedly made the doc- trine clear enough to parties relying upon it from 1950 to 1971. The prior history of the estoppel doctrine, its purpose and effect, and its merits and demerits were thoroughly canvassed in Lear. The Court began its analysis with a statement of the competing policies: “The uncertain status of licensee estoppel in the case law is a product of judicial efforts to accom- modate the competing demands of the common law of contracts and the federal law of patents. On the one hand, the law of contracts forbids a purchaser to repudiate his promises simply because he later becomes dissatisfied with the bargain he has made. On the other hand, federal law requires that all ideas in general circulation be dedicated to the com- mon good unless they are protected by a valid patent. Sears, Roebuck v. Stiffel Co., supra [376 U.S. 225 [84 S. Ct. 784, 11 L. Ed. 2d 661] (1964) ]; Compco Corp. v. Day-Brite Lighting, Inc., supra [376 USS. 234 [84 S. Ct. 779, 11 L. Ed. 2d 669] (1964) ]. When faced with this basic conflict in policy, both this Court and courts throughout the land have naturally sought to develop an intermediate position which somehow would remain responsive to the radically different concerns of the two different worlds of contract and patent. The result has been a failure. Rather than creative compromise, there has been a chaos of conflicting case law, proceeding on incon- sistent premises. Before renewing the search for an acceptable middle ground, we must reconsider on their own merits the arguments which may properly 14 The Supreme Court of California in Lear had described the estoppel doctrine as “one of the oldest doctrines in the field of patent law.” 67 Cal. 2d 882, 891, 435 P. 2d 321, 325 (1967). 13 be advanced on both sides of the estoppel question.” 395 U.S. at 668, 89 S.Ct. at 1910. The Court concluded its survey of the estoppel doctrine by determining: “Surely the equities of the licensor do not weigh very heavily when they are balanced against the im- portant public interest in permitting full and free competition in the use of ideas which are in reality a part of the public domain. Licensees may often be the only individuals with enough economic incentive to challenge the patentability of an inventor’s dis- covery. If they are muzzled, the public may con- tinually be required to pay tribute to would-be monopolists without need or justification. We think it plain that the technical requirements of contract doctrine must give way before the demands of the public interest in the typical situation involving the negotiation of a license after a patent has issued.” Id. at 670, 89S. Ct. at 1911. The key policy motivation weighing the scales in Lear in favor of outlawing licensee estoppel was obvi- ously the “unmuzzling” of licensees to challenge patenta- bility. Clearly, that unmuzzling occurred instanter the day Lear was decided. Consequently, it operates retro- spectively in the sense that it affected the executory por- tion of license restrictions regardless of when they were negotiated and entered into by the parties. As of June 16, 1969, such restrictions became null and void and un- enforceable. Massillon-Cleveland-Akron Sign Co. v. Golden State Advertising Co., 444 F.2d 425, 427 (9th Cir. 1971); Panther Pumps & Equipment Co., Inc. v. Hydrocraft, Inc., 468 F.2d 225, at 231 (7th Cir. 1972). On the other hand, it is difficult to see how the award- ing of damages (assuming they would be provable as 14 proximately caused by a restriction) would effectuate any unmuzzling, particularly in this case where the defend- ants are not licensees and were never subjected to the restrictions. In an analogous situation, the Sixth Circuit has held that a license restriction voidable under Lear is not void ab initio, entitling the licensee to recoup royalties already paid. Troxel Manufacturing Co. v. Schwinn Bicycle Co., 465 F.2d 1253 (6th Cir. August 11, 1972).° To award damages occurring prior to the decision of Lear, based upon the license restrictions voided on that date, would not enforce Lear’s policy but would be purely punitive, a result not warranted where, as here, no fraud nor bad faith was shown to be involved. This brings us to the third factor determining retroactivity: it would lead to inequitable results to apply Lear retroactively insofar as damages are concerned in the present case.’® 15 Although such a holding may seem to fly in the face of the Supreme Court language that “Lear must be permitted to avoid payment of all royalties accruing after Adkin’s 1960 patent issued” (395 U.S. at 674, 89 S. Ct. at 1913), the Sixth Circuit points out that Lear had terminated all license payments prior to the issuance of the patent and that no royalties were paid after the patent issued. 465 F.2d 1253, page 1259. Thus, there was no question of recouping royalties previously paid. 16 For example, in United States v. General Electric Co., 272 U-S. 476, 47 S.Ct. 192, 71 L. Ed. 362 (1926), the Court held that a pat- entee did not violate the antitrust laws by appointing del credere agents who sold patentee’s products on consignment at a price fixed by the patentee. In Simpson v. Union Oil Co., 377 U.S. 13, 84 S.Ct. 1051, 12 L. Ed. 2d 98 (1964), the Court held that resale price maintenance through coercive ‘“‘consignment” agreements violated the antitrust laws. Although the Court sought to distinguish General Electric on the ground that the product involved there was patented, Mr. Justice Stewart, dissenting, concluded that “‘[i]t is clear, therefore, that the Court today overrules General Electric.” Jd. at 29, 84 S. Ct. at 1061. Justices Bren- nan and Goldberg were concerned with “agreements that may have been entered into in reliance upon United States v. General Electric.” Id. at 31, 84 S. Ct. at 1059. Obviously with these considerations in mind, the PEP RT NSD INOS PM re a 15 We conclude, therefore, that Lear should not be applied retroactively to this case in its damage aspects. Consequently, the portion of plaintiff’s license agreements providing that the licensee “will not contest the validity of any patent which is now a part of this agreement during the life of this agreement” did not constitute a misuse of the patent. The clause became null and void on June 16, 1969, and the patents on which it was based became invalid shortly thereafter as a result of this Court’s final decision in that regard. 421 F.2d 809, cert. denied, 399 U.S. 911, 90 S. Ct. 2203, 26 L. Ed. 2d 562 (1971). At that point the policy of Lear had been vindicated. However the problem here is complicated by the fact that some of the plaintiff’s license agreements pur- port to extend the no-contest provisions beyond the life of the agreements and some of its sales agreements pur- port to extend the acknowledgment of patent validity beyond the life of the agreement."’ In Brulotte v. Thys majority opinion by Mr. Justice Douglas decided that “[w]e reserve the question whether, when all the facts are known, there may be any equities that would warrant only prospective application in damage suits of the rule governing price fixing by the ‘consignment’ device which we announce today.” Jd. at 24-25, 84 S.Ct. at 1058. On remand, the district court found that the new rule would be unfair to the litigant in that case, precluding damages. The Supreme Court reversed, hold- ing that the reserved question did not apply to the litigants in that case but to the prospective application of the new rule in other cases. Simp- son v. Union Oil Co., 396 U.S. 13, 14, 90 S.Ct. 30, 24 L. Ed. 2d 13 (1969). 17 Defendants seek support for the judgment in their favor in the fact that some of plaintiff’s license agreements including the restrictive language were purchase licenses and others were manufacturing licenses, but they cite no authority which would lend significance to the dis- tinction. Plaintiff on the other hand relies on Baldwin-Lima-Hamilton Corp. v. Tatnall Measuring Systems Co., 169 F.Supp. 1, 26 (E.D. Pa. 1958), aff’d., 268 F.2d 395 (3rd Cir.), cert. denied, 361 U.S. { % 16 Co., 379 U.S. 29, 85 S.Ct. 176, 13 L. Ed. 2d 99 (1964), the Court found a per se misuse of patent where royalty payments under license agreements projected beyond the expiration date of the last covered patent." The misuse was based on activities (exaction of royalties) occurring in the post-expiration period. Here the licensees were purportedly agreeing not to contest the validity of plaintiff's patents after the termina- tion of the license agreement.”® There is no evidence in the record that any licensee terminated his license ar- rangement with the plaintiff and hence no post-expiration activities actually took place. However, some misuse may be inferred from the mere Presence of the “thereafter” clause. Licensees and pur- chasers may have been induced to continue their licensing or purchasing arrangements with the plaintiff because if they terminated those arrangements to seek to deal with a competitor such as defendant, they would, prior to 894, 80S. Ct. 190, 4 L. Ed. 2d 151 (1959), where similar licenses were involved and the court said: “The purchase requirement pertained to patented gages only .... It is to be noted that the licenses do not prevent the licensees from buying gages of any kind, in any quantities, and from whomsoever the licensees pleased, so long as the gages do not infringe Baldwin's patents. In effect, the agreements are undertakings not to infringe the Baldwin patents.” ** The Court distinguished (and presumably was then still acknow!- edging favorably) Automatic Radio Manufacturing Co. vy. Hazeltine Research, Inc., 339 U.S. 827, 70 S.Ct. 894, 94 L.Ed. 1312, by pointing out that there “[w]hile some of the patents under that license apparently expired, the royalties claimed were not for a period when all of them had expired.” 379 U.S. at 33, 85 S.Cr. at 179. ** Although each license agreement would expire by its terms with the expiration of the covered patents “and improvements thereon, and under any divisions, continuations, reissues or extensions thereof” never- theless the terms of the various license agreements could expire while the patents remained in effect since the licensor could terminate for breach and the licensee could terminate without cause, each upon giving 60 days’ written notice. 17 Lear, have been unable to defend against an infringement suit by the plaintiff. Nevertheless, in order to succeed in their counterclaim the defendants must show all of the elements necessary to create an antitrust cause of ac- tion, including damages suffered by the defendants as a proximate result of illegal acts of the plaintiff. Vv Much of defendants’ evidence intended to show antitrust damages is based upon the alleged failure of the business of Balax to progress in an economically satis- factory manner due to the financial pressures of main- taining its defense to this lawsuit. Even as such damages, if proved, are not recoverable from a patent law stand- point inasmuch as a suit to prevent infringement is not a patent misuse (35 U.S.C. §271(d)),* neither are the same damages recoverable from an antitrust standpoint unless the suit is an integral part of a conspiracy to re- strain trade or to monopolize” over and beyond the pro- tection afforded by the presumptively-valid patent rights.” 2°See footnote 8. In the prior appeal, this Court concluded that “we do not find adequate grounds for making an award of attorneys’ fees to defendants.” 421 F.2d 809, 821. 21 Dairy Foods, Inc. v. Dairy Maid Products Cooperative, 297 F. 2d 805, 809 (7th Cir. 1961) ; Clapper v. Original Tractor Cab Co., 270 F.2d 616, 623-624 (7th Cir. 1959), cert. denied, 361 U.S. 967, 80 S. Ct. 588, 4 L. Ed. 2d 547 (1960). In both the Clapper and Dairy Foods cases, two or more patentees were alleged to have conspired to pool their patents. See Hartford-Empire Co. v. United States, 323 U.S. 386, 165 S. Cr. 373, 89 L. Ed. 322 (1945). The nexus between patent misuse and possible antitrust violations is a close and obvious one in patent pool situations. *2 Laitram Corp. v. Deepsouth Packing Co., 279 F. Supp. 883, 891 (E.D. La. 1968): “ ‘Where * * * the infringement suit and notices sent to the trade at the commencement of such suit are the sole cause of damage suffered by the claimant’ we are told by a writer who is backed by ample authority, ‘the courts have uniformly refused recovery of treble damages’ [ Note, 52 Col. L. Rev. 936, 937 (1952) }.” 18 Our examination of the record discloses no action by the plaintiff relating to the institution of this lawsuit which differs in any material respect from that of any patentee who has assumed that his patent is valid. The defendants’ original counterclaim, filed on June 30, 1964, did not allege much more than that “Defendants have continually been harassed by Plaintiff and have been the victims of illegal conspiracies in restraint of trade and of interference with contract.” An amended counterclaim was filed on February 14, 1966, stating, among other allegations, that the plaintiff and its licensees had agreed to handle plaintiff's taps only and that one of plaintiff's officers “regularly meets with representatives of ‘competitive’ tap manufacturers in a Metal Cutting Tool Institute and at Tap Standards meetings.” After hearing the evidence in the original trial (at which most of the evidence in the record now before us was adduced), the trial jurge found (291 F. Supp. 328, 348) : “In my opinion, this counterclaim may not succeed because (1) there was no adequate proof of fraud in procuring the patents in suit, (2) the plaintiffs are not properly chargeable with illegal enforce- ment of their patents, and (3) there has been no sufficient showing of an illegal combination to re- strain trade.” Upon remand there was a two-day trial at which proof was limited to that which was not available at the time of the previous trial The trial judge’s findings at the conclusion of the remand trial included a finding that the plaintiff “improperly influenced the pricing structure of swaging taps and exerted an excessive influence on the price thereof” (Finding of Fact 17) and that the “sales to consumers by distributors for Besly and its licensees legge - 19 were at .. . identical list prices. . . .”(Finding of Fact 19). The evidence shows that swaging taps are sold at approximately the same price.’ We have searched the record in vain in an effort to find any other evidence tending to support the trial judge’s finding, not of price- fixing, but of improper price influencing.** Although “[n]o formal agreement is necessary to constitute an unlawful conspiracy,” American Tobacco Co. v. United States, 328 U.S. 781, 809, 66 S.Ct. 1125, 1139, 90 L. Ed. 1575 (1946), similarity in the sale of standardized products does not alone make out a case of collusive price fixing, the reason being that competi- tion will ordinarily cause one producer to charge about the same price charged by any other.** United States v. International Harvester Co., 274 U.S. 693, 708-709, 47 S. Ct. 748, 71 L. Ed. 1302 (1927); Cement Mfrs. Pro- tective Ass’n v. United States, 268 U.S. 588, 605-606, 45 S.Ct. 586, 69 L.Ed. 1104 (1925). The Supreme Court “has never held that proof of parallel business *3"lhe evidence consisted of (1) the statement of the General Sales Manager of Balax who testified that prices were identical “so far as I know” (A. 535-536) ; (2) the statement of plaintiff's General Manager that prices were “pretty comparable” (A. 568); and (3) documentary evidence that two of plaintiff's licensees had identical prices and dis- counts on one tap size (Tables 3 and 6, Add. A.). *4 Defendants in their brief point out that plaintiff and all but two of its licensees (and, as supplemented by plaintiff's reply brief, three of the Balax licensees) are members of the Metal Cutting Tool Institute. In Maple Flooring Mfrs. Ass’n v. United States, 268 U.S. 563, at 584, 45 S. Cr. 578, at 585, 69 L. Ed. 1093 (1925), the Supreme Court said: “We do not conceive that the members of trade associations be- come . . . conspirators merely because they gather and disseminate in- formation . . . bearing on the business in which they are engaged and make use of it in the management and control of their individual businesses. ...” ** In this case the distributor prices of Balax were approximately the same as plaintiff's prices to distributors (A. 673). 20 behavior conclusively establishes agreement or, phrased differently, that such behavior itself constitutes a Sher- man Act offense.” Theatre Enterprises, Inc. v. Para- mount Film Dist. Corp., 346 U.S. 537, 541, 74 S.Ct. 257, 259, 98 L. Ed. 273 (1954). We conclude that there was no evidence to support a conspiracy to fix or influ- ence prices. As in Kearney & Trecker Corp. v. Giddings & Lewis, Inc., 452 F.2d 579, 600 (7th Cir. 1971), cert. denied, 405 U.S. 1066, 92 S. Ct. 1500, 31 L. Ed. 2d 796 (1972), the defendants have argued here that “plaintiff's dominant position, coupled with its restrictive licensing practices, has enabled it to enhance the price level.” Our response to this argument continues as there: “If this be so, defendant, as a competing manufacturer of machines, would not have been injured.” VI There being no evidence to support any per se antitrust violations,” we proceed to consider whether the totality of evidence, although not constituting patent misuse nor per se antitrust violations, did constitute an attempt by plaintiff to monopolize interstate commerce, which caused damage to the defendants. 6 Although the prices of swaging taps to distributors were unaffected by a price war in the cutting tap market, nevertheless the price war had caused a 20-25% decrease in plaintiff's sales of swaging taps (A. 564-65). *7 We recognize that the trial court found that plaintiff “unlawfully foreclose[d] competitors” (F.F. 18) and that this could rise to a per se violation (United States v. Griffith, 334 U.S. 100, 107, 68 S. Ct. 941, 92 L. Ed. 1236 (1948) ) but we consider this argument infra as part of our consideration of monopoly power. ee ee ee ee 21 The heart of the trial court’s legal conclusion after remand was that: “The acts of Besly and Besly’s agreements with purchasers of its swaging taps and with its patent licensees violated the Sherman Act because they con- stituted an attempt by Besly to monopolize trade or commerce between the states of the United States in said swaging tap market.” (Conclusion of Law No. 3.) Section 2 of the Sherman Act proscribes attempts to monopolize. In the words of Judge Learned Hand, “In order to fall within §2, the monopolist must have both the power to monopolize, and the intent to monopolize.” United States v. Aluminum Co. of America, 148 F.2d 416, 432 (2nd Cir. 1945). See also, Bernard Food In- dustries, Inc. v. Dietene Co., 415 F.2d 1279, 1284 (7th Cir. 1969) cert. denied, 397 U.S. 912, 90 S.Ct. 911, 25 L. Ed. 2d 92 (1970). The trial court defined the relevant product market to be “the sale for resale of swaging taps.” This market definition ignored the evidence in the record of interchangeability among swaging taps and cutting taps. In United States v. Du Pont & Co., 351 U.S. 377, 394- 395, 76 S.Ct. 994, 1006, 100 L. Ed. 1264 (1956), the Court said: “When a product is controlled by one interest, without substitutes available in the market, there is monopoly power. Because most products have pos- sible substitutes, we cannot . . . give ‘that infinite range’ to the definition of substitutes. Nor is it a proper interpretation of the Sherman Act to require that products be fungible to be considered in the rele- vant market. 22 “. . . In considering what is the relevant market for determining the control of price and competition, no more definite rule can be declared than that com- modities reasonably interchangeable by consumers for the same purposes make up that ‘part of the trade or commerce,’ monopolization of which may be il- legal.” In addition to a considerable amount of testimony by both sides as to the physical interchangeability and com- petitive interchangeability of swaging taps and cutting taps it is entirely clear from the defendants’ own ad- missions that swaging taps are “reasonably interchange- able” with approximately 50% of the cutting tap market.” Using both of defendants’ hypotheses, namely that 50% of the $60 million per year tap market is potentially in- terchangeable between cutting and swaging taps and that after an actual interchange the $30 million market would decrease to $6 million by virtue of the relative inexpen- siveness of the total volume of needed swaging taps, the *8 A. 533-35, 538-39, 579-82. *°In defendants’ brief, p. 43, they state: “The advent of swaging taps seriously threatened the cutting tap manufacturers for two reasons. First, swaging taps have no flutes so that fluted blanks are not needed, and small competitors can readily enter the market with a single thread grinding machine (A-465. 513). Sec- ond, each swaging tap replaces on the average at least 10 cutting taps (A-483). Hence although the swaging tap costs twice as much as a cutting tap, swaging taps will replace cut ting taps for a consumer at one-fifth the investment. The parties agree swaging taps can supersede approximately 50% of the cutting taps now in use ( 4-483, 534, 566). In other words, of approximately $60,000,000 in cutting taps sold, $30,000,000 will be lost to swaging taps (A-566). However, when swaging taps supersede the $30,000,000 worth of cutting taps, those swaging taps will sell for only $6,000,000 because as noted each sWaging tap, although costing twice as much as a cutting tap, will replace 10 cutting taps (A-483). “Thus the intrusion of swaging taps into the cutting tap market re- sults in very substantial losses to the established cutting tap manufac- turers. . .” (emphasis added). 23 comparative market position of plaintiff (Besly), defend- ant Balax and plaintiff’s licensees were as follows: Percentage of $30 Million Tap Market 1968 1970 Besly 3.2% 2.7% Balax 1.4 2.2 Besly Licensees 2.4 3.6 Percentage of $6 Million Tap Market 1968 1970 Balax 15.8% 13.4% Balax 7.2 10.8 Besly Licensees 12.2 17.8 Accepting all alternatives in favor of the de- fendants( that is, the $6 million market and combining the plaintiff’s share of the market with the share of its licensees) the combined market position of plaintiff and its licensees is 31.2%. In the oft-cited words of United States v. Aluminum Co. of America, 148 F.2d 416, 424 (2nd Cir. 1945), 33% control of a market “is not enough” to constitute a monopoly.” In Kearney & Trecker Corp. v. Giddings & Lewis, Inc., 452, F.2d 579, 598 (7th Cir. 1971), cert. denied, 405 U.S. 1066, 92 S.Ct. 1500, 31 L. Ed. 2d 796 (1972), we held that a patentee who controlled one-third of the relevant market posed a “dangerous probability” of mo- nopolizing that market. Although Judge Stevens stated in that case that the dangerous probability test did not “involve an evaluation of the actual likelihood that an attempt would have succeeded if not frustrated by an intervening event,” it is noteworthy, if not distinguish- ing, that there the intervening event was exposure of a 3° On the other hand, 33.2% “is impressive,” United States v. Colum- bia Steel Co., 334 U.S. 495, 533, 68 S.Ct. 1170, 92 L.Ed. 1533 (1948), although in that case not determinative. AR eel ri 24 fraud on the patent office and engaging by the patentee in predatory conduct, wheréas here the issuance of the patents was procured in good faith by the plaintiff and the intervening agent was this Court’s holding that the patents were invalid. Once petition for certiorari was denied, all of plaintiff's agreements based on the invali-- dated patents were cancelled (A. 565), thus terminating plaintiff's ability to consummate any monopoly. All of those facts and pertinent precedents, how- ever, simply emphasize that in this case the question of potential monopoly power is exceedingly delicately balanced on several fine lines and we should not pur- port to rely upon its existence or non-existence if in fact the defendants have not met their burden of demonstrat- ing that plaintiff's conduct “injured [them] in... [their] business or property.” 15 U.S.C. §15. Defendant Balax claimed and the district court found that plaintiff's activities enabled it to “unlawfully fore- close competitors, among others Balax. from a substantial market, i.e., the sale for resale of swaging taps | F I 1S) Balax not only had obtained ¢ peters an on omproved type of swaging tap, but markers? char cop os ¢ seperior product.” 31 Van Vleet testified «+ into the swaging tap marke One, we were unable te po- sau vendor blanks of suitable ous > \ . to purchase blanks and were > ; le much we — realized as the result 9+ vcs teow tie ie content swaging taps were to the kind thar we 2 tents that we have run and tests that our custoeness has > = the ) indicated a marked superiority in our product [hore we could go into the swaging tap business without the purchase without the capital in- vestment of expensive fluting equipment and make 4 promt. We, therefore, elected to work on that area and te meanwhile design our own fluting equipment for the cutting taps so that we would be self- 25 TN MTT) niin...) ee yr i . The dollar volume of Balax swaging tap sales (round- ed to the closest thousand dollars) were: 1964 $108,000 1965 156,000 1966 267,000 1967 332,000 1968 430,000 1969 484,000 1970 647,000 (projected) Comparative sales of swaging taps in terms of percentages were: 1964 1965 1966 1967 1968 1969 1970 Besly 58% 50% 52% 45% 45% 50% 32% 8 15 Balax 10 17 20 23 26 Besly Licensees 33 39 33 38 35 27 42 Balax’s sales had increased at a steady, substantial rate prior to the cancellation of Besly’s licenses on June 22, 1970; its share of the swaging tap market increased at the same time in an impressive fashion and at the ex- pense of Besly’s share of that market (the plaintiff’s li- censees’ share also increasing but not as sharply as that of Balax). In the ordinary situation of proving damages allegedly caused as the result of certain actions by another, the injured person or corporation shows how its sales declined during the pertinent period but even that is not deemed sufficiently probative. In Continental Nut Co. v. Robert L. Berner Co., 393 F. 2d 283, 286 (7th Cir.), cert. denied, 393 U.S. 923, 89 S.Ct. 254, 21 L.Ed. 2d 259 (1968), sufficient and do all of our operations within our own four walls.” Van Vleet also testified (A. 467): “Our methods at Balax are so very different, our procedures, our operations, our machinery, is so very different that if we tried to use Besly-Welles methods, we could not operate our shop. We could not make a profit.” The district court found after the first trial that ‘“‘when the plaintiffs visited the Balax plant in 1965, they found very little in common be- tween the two operations.” 291 F. Supp. at 345. 26 this Court said that “where .. . the plaintiff knows the identity of the customers it claims to have lost and has a record of the previous purchases of each, special dam- ages in the form of profits lost because of the withdrawal of patronage by such customers, to be recoverable, must be proved with that specificity which shows the loss of profit attributable to patronage withheld by the par- ticular customer and that such withholding was the re- sult of ... [the other party’s unlawful act].” Here, where Balax’s sales increased very substantially, the evidence of damages consists of (1) Van Vleet’s testimony that he “thinks” that “one of the reasons” for Balax’s Detroit representative discontinuing representing Balax was because a Ford Motor Company plant to which he hoped to sell taps had learned of the infringe- ment suit (A. 508-10); (2) Van Vleet’s testimony that “I believe our business amounted to something like 60 per cent of what it would have amounted to had this action not been brought” (A. 51 1) and (3) Balax’s sales manager’s testimony that but for the lawsuit sales would be “I would say at least twice as much as we are cur- rently [selling]” (A. 536-537) .® %°This is a far cry from defendants’ relied-upon quotation from Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 323, 91 S. Ct. 795, 798, 28 L. Ed. 2d 77 (1971) that “Zenith demonstrated the fact and extent of its business injury by estimating the percentage of the foreign market it would have enjoyed absent the conspiracy dur- ing the four years prior to 1963 and showing the portion it actually enjoyed during those years.” As demonstrated by the Supreme Court’s earlier opinion in the same case, the “estimate” was based on carefully calculated and precise facts. See 395 U.S. 100, 116, n. 11, 89 S.Ct. 1562, 1573, 23 L. Ed. 2d 129: “The computation of damages, prepared by Zenith’s experts and accepted by the District Court, see 239 F. Supp. at 76, reflects a comparison between Zenith’s percentage share of the United States television market, ranging from 15.6% in 1959 to 21.7% in 1963, and Zenith’s actual share of the Canadian market during the same period, ranging from 3.1% in 1959 to 5.2% in 1961 and down to 3.2% in 1963.” 27 We have already discussed the fact that the institution of the law suit in itself was not an actionable wrong here and that defendants failed to prove that such institution was an integral part of aconspiracy. It is further obvious that the defendants have not proved any specific damages nor shown beyond mere speculation that if any damages were sustained, they were the result of any antitrust viola- tions. The same manufacturers, including plaintiff, who sup- ply the swaging tap market also supply the cutting tap market, except Balax which supplies only the swaging tap market. There is no evidence in the record that plain- tiff has played any part in excluding the defendants from the cutting tap market. Yet the crucial testimony regard- ing what Balax conceives to be its damages included the following (A. 536, 537) : “Q. Has Balax expanded its market geographi- cally as far as you feel it can? “A. No, definitely not. “Q. What should Balax do in order to expand the market further geographically? * “A. We need a more complete line for one thing, and we need representation in probably three addi- tional areas in the country where we are not repre- sented now and where there is a substantial volume of tap business. * * * “Q. How would you expand your line so as to be able to expand your market geographically ’ “A. The product which would be most closely related to our line and, therefore, would lendgJmme!t to selling to our current dealer and distrityftor \ ganization would be a line of cutting taps.” In other words, Balax’s business has steadily increased and would increase more if it carried cutting taps, which 28 it does not, through no reason proved to be attributable to the plaintiff . Although defendants concede that “the intrusion of swaging taps into the cutting tap market results in very substantial losses to the established cutting tap manu- facturers,”** defendants would hypothesize without sup- porting evidence that the cutting tap manufacturers would conspire with the plaintiff (1) to keep the price of swaging taps high although those of cutting taps were dropping during a price war and (2) to restrict them- selves through license agreements, all to the benefit of plaintiff but to their own great detriment. We have previously considered the pricing aspects and we now add as we did in the Kearney & Trecker case, supra, that “defendant never took a license . . . and to the extent that those provisions made plaintiff’s licensees less effec- tive competitors, defendant certainly was not harmed.” 452 F.2d at 600, n. 52. There is no evidence that the defendants were foreclosed from any market or, if they were, that they were injured. We conclude that there was no per se patent misuse and were no per se antitrust violations, which enable us to consider the reasonableness of plaintiff’s actions and to require that defendants prove damages with specificity and also to prove that such damages, if any, were caused by plaintiff's actions. In accordance with our preceding analysis, we conclude that plaintiff’s actions in protecting what it presumed to be a valid patent were reasonably designed to effectuate that protection, that defendants did not prove any recoverable damages, and that assum- ing or speculating that damages were incurred by de- 33 See footnote 29. ite. | 29 fendants, they failed to prove that such damages were the proximate result of plaintiff’s actions.™ Therefore we reverse the district court’s judgment. HASTINGS, Senior Circuit Judge (concurring in the result). In our decision of the first interlocutory appeal in this case, Bendix Corporation v. Balax, Inc., 7 Cir., 421 F. 2d 809 (1970), cert. denied, 399 U.S. 911, 90 S. Ct. 223, 26 L. Ed. 2d 562, we made a final disposition of all issues therein raised, except the one question remaining on the remand. We noted that the trial court had rather sum- marily brushed aside the charge of antitrust violations by dismissing defendants’ antitrust counterclaim against plaintiffs. Further, we observed that the parties did not address themselves to the relevance, if any, of Lear, Inc. v. Adkins, 395 U.S. 653, 668-671, 89 S. Ct. 1902, 23 L. Ed. 2d 610 (June 16, 1969), to this issue in the prior appeal, and that it could not have been considered by the district court because Lear was subsequent to its prior judgment. Under those circumstances “we [ felt] it should be first presented to the trial court for its con- sideration.” (Emphasis added.) We purposely withheld our views on the “relevance, if any,” of Lear and did not intend to indicate how the district court should re- solve this matter. 421 F.2d at 820-821. On remand, after further hearing, the district court obviously thought Lear was relevant and found Bendix and Sellew liable for damages to Balax and Van Vleet %4Tn this opinion we have commented upon certain of the evidence. The fact that we have not commented upon all of the some 600 exhibits nor upon all of the some 1500 pages of testimony nor upon the many depositions, is not intended to give any indication that we have not considered all of it in reaching our conclusion. 30 for its Sherman Act violations. In all other respects, the counterclaim was dismissed. I find myself in agreement with that part of Part IV of the majority opinion which contains the conclusion “that Lear should not be applied retroactively to this case in its damage aspects.” If Lear is not to be applied retro- actively, and I agree that it should not be, then, in my judgment, that effectively disposes of the present appeal. Under the express terms of our prior remand “the rele- vance, if any, of Lear” has been determined—it has none. That settles the issue before us and the original dismissal of the counterclaim should be reinstated. I, therefore, join in that part of the majority opinion holding that Lear should not be applied retroactively and on this ground alone concur in the judgment of reversal. | ! , . pepe, | 31 United States Court of Appeals For the Seventh Circuit Chicago, Illinois 60604 January 16, 1973. Before Hon. JOHN S. HASTINGS, Sr. Circuit Judge Hon. WALTER J. CUMMINGS, Circuit Judge Hon. ROBERT A. SPRECHER, Circuit Judge THE BENDIX CORPORATION and SELLEW CORPORATION, Plaintiffs-Appellants, No. 71-1483 vs. BALAX, INC. and JOHN M. VAN FLEET (sic), Defendants-Appellees. Appeal from the United States District Court for the Eastern District of Wisconsin. (64 C 170) On consideration of the petition for rehearing and suggestion that it be heard en banc filed in the above- entitled cause, no judge in active service having requested a vote thereon, nor any judge voted to grant the sug- gestion, and a majority of the members of the panel having voted to deny a rehearing, IT IS ORDERED that the petition for a rehearing in the above-entitled cause be and the same is hereby de- nied. 32 APPENDIX B. The BENDIX CORPORATION and Sellew Corporation, Plaintiffs, Vv. BALAX, INC. and John M. Van Vleet, Defendants. No. 64-C-170. United States District Court, E. D. Wisconsin Jan. 8, 1971. DECISION MYRON L. GORDON, District Judge. On January 30, 1970, the court of appeals vacated a district court judgment which had dismissed Balax’s anti- trust counterclaim against Bendix. 421 F.2d 809, 821 (7th Cir. 1970). The court of appeals remanded the case for reconsideration of the anti-trust issue. The court of appeals commented, at page 821: “* * * the right to estop licensees from challenging a patent is not part of the ‘limited protection’ af- forded by the patent monopoly. F urthermore, the reason is that it creates a danger of unwarranted monopolization. Such danger may be even greater here than in the usual licensee-estoppel case for the reason that in the instant case the licensor sought to create an irrevocable estoppel, not one merely ex- tending during the life of the licenses and sales agreements.” The above quotation from the court of appeals un- doubtedly constitutes the “law of the case”. In addition, the correctness of the statement is supported by the testi- orl eS eee 33 mony taken at the original trial and at the hearing on re- consideration. For example, when Besly negotiated to sell swaging taps to Pratt & Whitney, the latter con- tracted not to contest the validity of the Besly patents “during the life of this agreement or thereafter”. A sim- ilar understanding was reached with Jarvis Corporation. When Besly dealt with John Bath & Company regard- ing a license, the latter company’s acknowledgment of the validity of Besly’s patents contained no time limita- tion. In negotiating with Cleveland Twist Drill Co., the acknowledgment of the validity of Besly’s patent at first was to last for “the life of said option”; this provision, however, was stricken and thus, the concession as to valid- ity continued for an indefinite period of time. Besly had contracts with over a dozen different com- panies to act as either a manufacturing licensee or a sales outlet. Each agreement with the following companies contained a concession by the contracting party either that it would not legally challenge the Besly patent or that it acknowledged the patent's validity: Hy-Pro Tool Com- pany, United Greenfield Corporation, Union Twist Drill Co., National Twist Drill & Tool Co., DoAll Company, and Threadwell Tap & Die Co. Balax correctly points out that as of June, 1970 there were only two manufacturers of swaging taps in the United States who were not licensed by Besly, to-wit: Vermont Tap & Die Company and Balax. It is thus ap- parent that through its agreements, Besly had gained and retained control of a substantial portion of the swaging tap market. I find that in actual practice, Besly was able to, and did, monopolize the swaging tap market and improperly 34 influence the pricing structure for the commodity. Besly was able to negotiate the royalty rate charged to licensees in a substantial portion of the market and was able to exert an excessive influence on pricing. Having obtained concessions as to the “validity” of its now invalid patent, and having obtained waivers regarding judicial action, Besly was able to, and did, monopolize the swaging tap market. Besly’s Opportunity to monopolize was enhanced by its having commenced actions against alleged infring- ers or by threatening to so do. Through this technique, in the words of International Salt Company v. United States, 332 U.S. 392, 396, 68 S.Ct. 12, 15, 92 L. Ed. 20 (1947), Besly was able. unlawfully, “to foreclose com- petitors from any substantial market.” I conclude that Balax, Inc. and Mr. Van Vleet have established their counterclaim and are entitled to judg- ment. Their counsel may submit findings of fact and con- Clusions of law for the court's consideration within 10 days from the date of this decision. Such document shall also be served, at the same time. upon counsel for Bendix, who are to have one week thereafter in which to file with the court any objections to the Proposed findings of fact and conclusions of law. 35 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN THE BENDIX CORPORATION, a corporation of Delaware, and SELLEW CORPORATION, a corporation of I]linois, Plaintiffs and Counterclaim Defendants Case No. 64C-170 BALAX, INC., a corporation of Wisconsin, and JOHN VAN VLEET, an individual, Defendants and Counterclaim Plaintiffs FINDINGS OF FACT AND CONCLUSIONS OF LAW The Court makes the following Findings of ultimate Facts based on (a) the record in the original trial (Jan- uary 19-25, 1968), supplemented by (b) the additions to the record in the Court of Appeals and the opinion of the Court of Appeals, and (c) the record made at the hear- ing in this Court on reconsideration on November 9 and 10, 1970. Parties and Basic Chronology Incident to this Litigation 1. This suit was instituted on June 17, 1964 by Besly- Wells Corporation, an Illinois corporation (later known as Sellew), against Balax, Inc., a Wisconsin corporation (Balax), and John Van Vleet, an individual (Van Vleet). The original plaintiff's corporate name was subsequently changed to Sellew Corporation, and the caption of this action was duly amended to reflect this fact. 36 The Complaint alleged (a) infringement of Besly’s swaging tap patents by swaging taps manufactured and sold by Balax, (b) the unlawful retention and use by VanVleet and by Balax of Besly’s trade secrets, for which Besly alleged it expected to receive as compensation royalties on its swaging tap patents, and (c) the alleged use by Balax of packaging and display material copied from or deceptively similar to that employed by Besly, to Besly’s damage. As early as April 20, 1962, Besly had formally charged Balax with infringement of Besly’s two swaging tap patents, Reissue 24,572 and 2,991,491, and also with said unauthorized use of trade secrets, and demanded an accounting for the profits and damages resulting therefrom. 2. John VanVleet, a mechanical engineer, who prior to 1959 had experience in the improvement of cutting taps for which he obtained U.S. letters patent, was famil- iar with swaging taps. In November, 1959 VanVleet organized Balax, Inc. and was the owner of all of its outstanding stock. From November, 1959 to January, 1962 Balax engaged in the building of tap thread grind- ing machines by extensive conversions of second-hand Excello machines, first in a little machine shop in Mil- waukee, Wisconsin, and commencing in September, 1960 in a leased one-story plant with approximately 2000 square feet of manufacturing space and 1000 square feet of office space, located in the Town of Merton, Waukesha County, Wisconsin. The only products manufacture [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385607_0413%3A1. Public record. Not legal advice.