Appendix A — Agrashell, Inc. v. Hammons Products Co.

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A } onc pee eres gute tere

is% Ingrisenarint

United States Court of Appeals

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No, 71-1538

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AGRASHELL, INC.,

Appellant, Appeal from United

States

vs. > District Court for

the Western

HAMMONS PRODUCTS COMPANY, District of Missouri

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Submitted: June 15, 1972

Filed: March 30, 1973

Before ROSS and STEPHENSON, Circuit Judges, and URBOM,

Chief District Judge.

ROSS, Circuit Judge.

Agrashell, Inc. (Agrashell) appeais from a judgment entered

on a jury verdict in favor of Hammons Products Company

(Hammons), on a counterclaim filed by Hammons in a patent

PLS RAR A oh 9 ALE MAAK oe

infringement suit alleging violations of sections | and 2 of the

Sherman Act and requesting treble damages under the Clayton

Act. For reasons hereinafter set forth, we reverse in part and

affirm in part the judgment of the trial court and order the

dismissal of that portion of the counterclaim alleging violations

of section 2 of the Sherman Act.

Procedural History

Agrasheli instituted a patent infringement action against

Hammons in 1963. The trial court granted Hammons a

summary judgment because it found that Agrashell, as an

exclusive licensee, did not have a right to sue for patent

infringement in its own name without participation of the

patent owner as party-plaintiff. Agrashell, Inc. v. Hammons

Products Co., 248 F. Supp. 258, 260 (W.D. Mo. 1965), aff'd,

352 F.2d 443 (8th Cir. 1965).

Although the patent expired in 1964, Agrashell obtained an

assignment of title to the patent and refiled the action in 1965

for past infringement. These proceedings were stayed pending

the outcome of the appeal from the 1963 summary judgment.

Thereafter, Hammons filed an answer and counterclaim

charging violations of sections | and 2 of the Sherman Act (15

U.S.C. §§ 1-2) and for a declaratory judgment of patent

invalidity, unenforceability and noninfringement. The case was

then set for trial.

A motion. made by Agrashell at the outset of the 1967

infringement trial, to sever the antitrust counterclaim issue from

the patent issue was granted at the conclusion of the patent

infringement portion of the case. On the patent claim, the trial

court entered judgment for Hammons, finding the patent

invalid and not infringed either directly or contributorily. The

court also found that even if the method claim were valid, it

was not infringed by Hammons. Agrashell, Inc. v. Hammons

Products Co., 279 F. Supp. 522 (W.D. Mo. 1967), aff'd, 413

F.2d 89 (8th Cir. 1969). The court, however, denied Hammons’

request for attorneys’ fees pursuant to 35 U.S.C. § 285.

Immediately following the trial of the patent issue, both

parties conducted discovery relating to Hammons’ antitrust

counterclaim, and Hammons requested a jury trial. Agrashell

then requested leave of the court to file an amended reply and

counter-counterclaims: for breach of contract and antitrust

violations. Agrashell alleged that Hammons had violated

sections | and 2 of the Sherman Act, section 7 of the Clayton

Act (15 U.S.C. § 18), and the Robinson-Patman Act (15 U.S.C.

§ 13). Both requests were granted and the case proceeded to

trial in 1970.

At the outset of the 1970 trial, Hammons moved for trial of

its counterclaim separate from trial of Agrashell’s

counter-counterclaim. The trial court decided that each case

would be presented separately but to the same jury. However,

five weeks later, at the close of all of the evidence on Hammons’

counterclaim, the motion for severance was granted over

Agrashell’s objection, Agrashell’s motions for a directed verdict

were denied,! and a verdict was returned by the jury in favor of

Hammons. Thereafter, pursuant to a stipulation of the parties,

Agrashell’s counter-counterclaims were dismissed without

prejudice. Agrashell’s motions for judgment n.o.v. or for a new

trial were denied, and this appeal was taken.

Statement of Facts

A. The Product

This case involves the use of processed nutshells in two ways:

First, as a soft grit abrasive (SGA) in cleaning operations, and

1. At the same time, however, the trial court noted that it refused to

submit to the jury the issue of fraud in the procurement of the patent. See

Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp.. 382

U.S. 172 (4196S)

secondly; as. lost circulation material (LCM) used in oil well

drilling.

SGA is “soft” in relation to harder abrasives such as sand.

For example, SGA is projected against deposits on engine parts

by air blasting and other means so as to remove the deposits

with a minimum of damage to the part itself. While SGA may

be composed of nutshells, it may also be composed of fruit pits.

sawdust, rice hulls, com cobs and clover seeds. The type of

nutshells used may also be differentiated as either soft or hard.

Agrashell sells SGA which is composed of black walnut and

apricot pit shell, and Hammons sells SGA which is composed

solely of black walnut shell.

Various companies processed or “manufactured” SGA in

some form during the time periods in question. Agrashell of Los

Angeles, California; Hammons of Stockton, Missouri; Gravette

Shelling Company of Gravette, Arkansas? (Gravette); Block

Brothers, Inc. of Nashville, Tennessee; and Block Walnut

Processing Corp., of Nashville, Tennessee (known together as

Block); Continental Nut Company of Chico, California

(Continental); Industrial Flour and Abrasives Company of

Morristown, Tennessee (Industrial Flour); Lufkin Pecan

Company of Lufkin. Texas (Lufkin); Star of Texas Company of

Fort Worth. Texas (Star of Texas); Texas Feed and Grain

Company of Fort Worth, Texas (Texas Feed); and Southeastern

Reduction Company of Valdosta, Georgia (Southeastern) are,

or were during the periods of time in question, processors of

SGA. Various companies distributed SGA, but apparently did

not manufacture it: Pangborn Corporation of Hagerstown,

Maryland (Pangborn); American Wheelabrator & Equipment

Corporation of Mishawaka, Indiana (Wheelabrator) [both

Pangborn and Wheelabrator were large manufacturers of blast

cleaning equipment]; Composition Materials Company

2. Hammons acquired the controlling interest in Gravette in August of

1960

(Composition) [Block’s jobber]; Bernard Sirotta Cldabacii of

New York, New York (Sirotta) {which at one time sold

Hammons’ SGA], and several others distributed Agrashell’s

SGA.

The Pan American Petroleum Corporation developed another

use for processed nutshell and patented the idea, giving

Cherokee Laboratories an exclusive license under the patent for

part of the time relevant here. Pan American’s patent covered

the use of processed nutshells in controlling the loss of

circulation of drilling muds utilized in oil well drilling. Agrashell

sells this “lost circulation material” (LCM) which is composed

primarily of english walnut shell and thus different from its

SGA. Hammons sells LCM which is almost identical to its SGA,

except for somewhat different sizes of the particles. LCM may

also be composed of nonnutshell products ranging from cotton

seed hulls to golf balls. Other companies, including Gravette and

Block, manufacture nutshell LCM.

The geographic markets for LCM and SGA are different. SGA

is sold nationwide, with emphasis in the industrial northeast,

while LCM is concentrated in the Mid-Continent and Gulf

States oil producing regions.

B. The Patent

Frank Perry, a civilian employee at an army air depot in

California during World War II, learned that projecting ground

black walnut shells of 10/15 or 10/30 mesh size against airplane

engine parts constitued an ideal SGA. Perry applied for and was

granted a patent, basically claiming

“the method of cleaning metal by ‘projecting there against a

stream of fluid under pressure carrying in suspension therein

pelletized black walnut shells,’ and a product, ‘an abrasive

material for use in air blasts for cleaning metal comprising

BA PIRI tS Sky =

pelletized black wainut shells.” Agrashell, Inc. v. Hammons

Products Co., supra, 279 F. Supp. at 522.

It was later learned that apricot pits have very similar physical

characteristics to the black walnut shell, and they are used

interchangeably by Agrashell.3 /d. at 523.

Perry assigned the patent to Turco Products Company, Inc.,

which granted an exclusive license to Agrashell. The patent was

in turn assigned to Purex Corporation, when Turco merged with

Purex, and finally was assigned by Purex to Agrashell.

Throughout this entire period, dating from 1947, Agrashell had

an exclusive license. The patent expired on June 10, 1964.

C. The alleged Sherman Act violations

Hammons’ claim was essentially that Agrashell had attempted

to monopolize hard nutshells within the SGA markets in

violation of section 2 of the Sherman Act by means of

infringement suits and certain formal and informal contractual

relationships so as to extend the Perry patent beyond its terms

and life. Hammons also claimed that certain formal and

informal contractual relationships unreasonably restrained trade

in hard nutshells within the SGA markets in violation of section

1 of the Sherman Act because the arrangements extended the

Perry patent beyond its terms and life.

(1) The Sirotta suit

In 1958 Sirotta had begun to purchase Hammons’ SGA for

sale to Sirotta’s customers. In October of 1960 Sirotta received

3. The Perry Patent Reissue indicates that the shells to be used were those

“having the hardness of black walnut shells,” as well as, black walnut shell

alone. The patent “contemplates the use of pellets of other types of

ground or cracked nutshells having equivalent characteristics” of black

walnut shell. The testimony of both parties indicated that apricot pit shell

and black walnut shell have similar hardness, resilience, and resistance to

breakdown characteristics.

i,

a notice of infringement from Agrashell; Agrashell had in 1954

written Sirotta about the possibility of infringement liability.

Sirotta contacted patent counsel who investigated the situation

and concluded that there was insufficient basis to challenge the

patent at least insofar as “prior art” was concerned. Sirotta was

selling nutshell SGA, including black walnut and apricot pit

SGA, for use in blasting equipment, including air blasting

equipment. Settlement negotiations broke down between

Agrashell and Sirotta and the infringement suit was filed in

February of 1963. g

During the course of taking a deposition Bernard Sirotta, the

president of Sirotta, asked to speak to Ayers, the president of

Agrashell, alone. Sirotta purportedly asked Ayers whether the

suit could be settled as between two businessmen. Sirotta claims

Ayers replied as follows:

“There can be only one way to settle this matter and that is

for you to get out of the business. You have no right to be

in the walnut shell business. This is my domain. If you do

not leave the business, I will cut prices so low that you will

not be able to survive.”

Ayers contradicted this statement at trial and indicated that he

only asked Sirotta about his position in light of the Perry patent

and told Sirotta that he thought he was infringing the Perry

patent.

Hammons was impleaded by Sirotta as a third party

defendant on the basis of an indemnity agreement between

Hammons and Sirotta established when Sirotta bought

Hammons’ SGA. Hammons resisted Sirotta’s attempt to obtain

jurisdiction over it, see Agrashell, Inc. v. Bernard Sirotta Co.,

344 F.2d 583 (2d Cir. 1965), but finally entered a personal

appearance in the suit in 1966 and counterclaimed against

Agrashell for antitrust violations. The Sirotta litigation was

settled when Sirotta payed $2,500 to Agrashell in 1968.

Hammons’ counterclaim in the Sirotta action was dismissed by

(2) The Hammons suit

In April of 1962 Hammons agreed to supply Agrashell with

black walnut shell of a mesh size suitable for blast cleaning.

Shortly after the consummation of that agreement, Ayers

visited with the Hammons officers. Although the evidence is

conflicting, Ayers apparently informed Hammons that he had a

patent for cleaning metal utilizing black walnut shell. He

indicated that his lawyers advised him to sue every shell grinder

who was infringing the patent but that he did not intend to sue

Hammons because Hammons had not been cutting prices. An

official of Hammons testified that Ayers

“made us aware of the Perry Patent, and then also that

there was some discussion on lost circulation material and

he told us that the main purpose of his visit was to get

acquainted, check our material, and to see if we couldn't

work out a lost circulation price that would be profitable to

everybody involved.”

The official further testified:

“Mr. Ayers advised me that his attorney had advised him to

sue everyone who was in the [sic] selling soft grit abrasive

materials. However, that they didn’t plan to sue everyone

but they were going after those who were guilty of cutting

prices ”

The official was asked whether Ayers made any statements

about Hammons’ LCM price and the official responded that

Ayers stated “he didn’t think that we were cutting prices and

trom the prices that they gave me at that time, we were getting

approximately the same prices, close not exactly. but close ~

Te ae Pagp O at” Atal DR aa

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In June of 1962 Hammons signed an LCM contract with a

former customer of Agrashell. Shortly thereafter Ayers called

Hammons wanting to know about the contract. Ayers was told

only that there was a contract, but no specifics were given to

him. About October of 1962 Agrashell began to complain about

the SGA material supplied to Agrashell and its customers,

indicating that Agrashell had received a number of complaints

relating to objectionable dust in the Hammons product sold to

Agrashell and to its customers. In November of 1962 Agrashell

ordered Hammons to stop production for Agrashell’s account

with regard to the prior contract. In December of 1962

Agrashell sent Hammons a notice of infringement of the Perry

patent.

Agrashell was willing to settle the matter based upon the

payment of royalties on “‘pellets of black walnut shells, or other

nutshells (including apricot pit shells) equivalent thereto for

blast cleaning purposes” sold by Hammons for or used as SGA

and requiring Hammons to accept a license. Negotiations broke

down partly because Hammons did not consider apricot pit

shell to come within the confines of the Perry patent but

primarily because Hammons finally decided it would not pay

the royalty after first evidencing an intent to settle on that

basis. Agrashell’s suit against Hammons was filed on August 7,

1963.

In its complaint filed in 1965 after acquiring title to the

patent, Agrashell alleged, among other things, that:

“Within the six (6) years last past, and within the term

said reissued letters patent, defendant has manufactured.

sold, used, and actively induced others to use within the

Western District of Missouri and elsewhere pelletized

nutshells having the hardness of black walnut shells,

including pelletized black walnut shells and such pelletized

nut shells having screen sizes of 10-30 mesh and 10-15

ng ‘of articles by use of the pelletized

projected against the articles. Defendant

has infringed said reissued letters patent.”

Ot Heent ersubantizings Ga ':

“Hainmons “answered, asserting affirmative defenses and |

: ‘Hammons alleged, among other things, that |

4 ‘had misused the patent by attempting to extend it to

“not covered including “wainut shells and/or ground

fi a Hammons counterclaimed asserting, among other

things, that Agreshell had attempted to restrain and did restrain

trade in commerce of ground black walnut shells in violation of

the Sherman Act, 15 U.S.C.§§ 1-2. Hammons additionally

claimed that the Perry Patent Reissue had been obtained by

virtue of fraud in that Agrashell knew of a prior patent covering

the same conception patented in the Perry Patent Reissue.

A meeting between Agrashell and Hammons was arranged on

March 24, 1966, by an official of Gravette who apparently

wanted to clarify the situation between Gravette and Agrashell.

The relationship between Gravette and Agrashell was awkward

because while Gravette and Agrashell had engaged in certain

contractual relationships, Hammons, who was being sued by

Agrashell, was in the process of acquiring the majority of

Gravette’s stock. During this meeting, an official of Agrashell,

apparently in response to a question from an official of

Hammons about Agrashell’s position in the lawsuit, indicated

that if Hammons was interested in concentrating on the walnut

meats alone, Agrashell would be interested in handling

Hammons shell product or acquiring their shell grinding

facilities.

No agreement being reached and neither party having

requested a jury, trial was commenced before the district court

on March 20, 1967. On that day one of Agrashell’s counsel

moved to sever the antitrust counterclaim. The motion was

taken under advisement. The district court held that the patent

was invalid due to obviousness and therefore not infringed, but

ao

that even if the method claim was valid it’ was not infri

either directly or indirectly. Agrashell, Inc. v. Hamm

Products Co., supra, 279 F. Supp. at 522-524. Prior to its

judgment on the patent case, but after all evidence had been

taken with regard to the infringement side of the suit, the

district court ordered a continuance with regard to the antitrust

counterclaim. The district court also declined to award

attorneys’ fees to Hammons.’ See 35 U.S.C. § 285.

(3) Contracts

Two types of contractual-like arrangements are involved in

this case. The first is known as a “Statement of Policy” which

Agrashell sent to some of its sales agents. The policy had three

essential parts which are especially relevant: Agrashell reserved

the right to set selling prices to the ultimate consumer invoiced

by the agent; the selling agent agreed to buy, sell and

merchandise only Agrashell SGA as long as the agent distributed

Agrashell SGA; and Agrashell averred that it was the exclusive

licensee under the Perry patent and had the exclusive nght to

convey the right to use SGA materials.

The Statement of Policy was first formulated some time in

the late 1940’s. Agrashell contended at trial that the agents who

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4. In the judgment the district court did not explicitly state whether the

product claims would have been infringed by the Hammons product if the

patent was valid. But in the trial of the antitrust counterclaim the same

district judge referred to the Hammons product as an “admittedly

infringing product.”

5. During the trial of the antitrust counterclaim the trial judge explained

why he did not award attorneys’ fees to Hammons in the patent case:

“I had read the few cases that are in the books under it [35 U.S.C. §

285] and to me, the determining factor was a question of good faith

and |- —whether | had the proper interpretation of good faith or not,

I came to the conclusion there was no question that the plaintiffs

[Agrashell] thought they had a valid patent, they were trying to

uphold what they thought was a valid patent, and they brought the

suit in good faith in that sense * * * .”

re Se Re

_ sold its SGA were never bound by the provisions of the policy,

_and two of Agrashell’s agents testified that they were neither

familiar with the Statement of Policy nor operated under it.

However, there is Agrashell correspondence which tends to

_ Support the inference that the Statement of Policy was agreed

to by some of the agents.

While there was Agrashell correspondence which indicated

the possibility of sale of SGA to agents for resale, there was

direct evidence from two of Agrashell’s agents who testified

that they never took title to the goods, never insured against

loss, never paid storage costs, never paid taxes on the goods, and

were merely paid a commission for the sales they made of

Agrashell’s products.

The second type of contractual arrangement involved the

negotiation of more formal contracts with Wheelabrator and

Pangborn. The contract with Wheelabrator was negotiated in

1950, and it appointed Wheelabrator, a large manufacturer of

blasting equipment, Agrashell’s del credere factor for the sale of

SGA. The contract also established that Wheelabrator was to

receive a commission on the sale of Agrashell’s SGA, that

Wheelabrator did not need to maintain an inventory of SGA.

that Agrashell would ship directly to the buyer. and that

Agrashell would be able to set the selling price. if, for certain

enumerated reasons. Agrashell could not fill Wheelabrator’s

orders. Wheelabrator. after notification to Agrashell, was free

temporarily to obtain similar materials for its requirements.

This contract could be terminated by giving notice 60 days

prior to any anniversary date thereof.

The contract with Pangborn, another large blast cleaning

equipment manufacturer, was negotiated in settlement of an

infringement suit brought by Agrashell against Pangborn.

Pangboern had been selling black walnut SGA obtained from

Gravette —

=

The Pangborn agreement bound Pangborn to handle -only

Agrashell SGA until the patent expired, and after that time; for

a period of some three years, Pangborn agreed to buy ‘from

Agrashell all of the SGA it needed unless a competitor could

quote a lower price on similar quality goods, in which case

Pangborn remained tound to buy from Agrashell unless

Agrashell elected not to meet the lower price. The Pangborn

agreement did not allow Agrashell to set prices. An

administrative assistant to the president of Pangborn testified

that at no time under the contract did Pangborn own the

Agrashell product or pay taxes or freight costs thereon.

(4) Related activity

On June 13, 1962, Ayers visited Jimmy Cox, president of the

Block companies. Block had been active in the LCM and black

walnut shell SGA markets. The substance of the conversation

between Ayers and Cox purportedly involved Ayers’

dissatisfaction with the price structure in the LCM market in

particular and the shell business in general. Ayers noted that he

had a price stabilization plan for the LCM market, but Cox

would not agree to any price stabilization plan. Ayers indicated

that if Block would not agree, Agrashell would enforce its

patent. About a month later Block received a notice of

infringement from Agrashell.

Suit based. in part. on the Perry patent was filed against

Block in March of 1963. The suit was finally settled for $2,500,

with Block paying half and Composition Materials, its jobber,

paying half. Ayers contradicted Cox’s testimony concerning this

incident at the trial and contended that the only purpose for his

visit to Block was to speak about Block’s infringement of the

Perry patent with regard to SGA and to speak about a joint

promotional program for the sale of LCM.

After Agrashell’s settlement with Pangborn. an official of

Gravette approached Agrashell with the proposition that

SAIC AB i Se

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Gravette: ‘might become licensed under the Perry patent.

Gravette:had-concluded that if Pangborn was satisfied that the

- Petry patent: ‘was valid it too would recognize the patent. During

‘@ Meeting between the president of Agrashell and officials of

" Gravette, Ayers allegedly stated that there was “one of two

ways this can be handled. either by lawsuit or by negotiating a

contract.” A contract was negotiated by Agrashell and Gravette

with Gravette agreeing to supply black walnut shell processed

and suitable for use as LCM, although 10 percent of the

material might be shell suitable for SGA use. The contract,

which was negotiated prior to the expiration of the patent,

extended some three years after the expiration of the patent.

D. The Verdict and Damages

The district court sent the counterclaim to the jury after five

weeks of trial, but he refused to submit the issue of whether the

patent had been fraudulently procured because he felt that no

submissible case of patent fraud had been established. The jury

returned a verdict in favor of Hammons and assessed damages in

the sum of $204,124.21. That sum was comprised of

$162,374.21 for litigation expenses and. $41,750.00 for loss of

profits. The jury assessed no damages for injury to going

concern value. The gross amount of damages was trebled by the

district court and that sum equaled $612.372.63. The district

court awarded attorneys’ fees of $150,000.00 and costs of

$13,361.31. The total judgment was $775,733.76.

The litigation expense damage was predicated upon

Hammons’ proof of the amount it had spent to defend the

patent infringement suit brought against Sirotta, $20,455.20,

and the amount it had spent to defend the infringement suit

Agrashell brought against Hammons itself, $141,919.01.

The jury award of $41.750.00 in damages was apparently

based upon evidence adduced hy Dr. Kuhiman. an economist.

His testimony concerning the damages sustained by Hammons

was the only theory of denen Hammons pepeenied ang is

summarized later in this opinion. ities

Issues Presented on Appeal

In its appeal from the judgment of the trial court, Agrashell

raises these issues:

1. Whether Hammons failed to establish that Agrashell had

violated the Sherman Act and by so doing proximately

injured Hammons.

2. Whether Hammons’ claims were barred by principals of res

judicata, collateral estoppel, or compulsory counterclaim.

3.Whether certain instructions relating to ‘“‘dangerous

probability,’’ prosecution of the suit for patent

infringement, “target area,”, and agency arrangements,

were prejudicially erroneous.

4. Whether prejudicial error occurred in the conduct of trial

relating to the issues of waiver of jury trial, admission of

deposition testimony, and exclusion of offers of

compromise.

Sufficiency of Proof of Sherman Act

Violations and Damages

Hammons alleged violations of both section | and section 2

of the Sherman Act. After a careful review of all of the

pleadings, testimony and exhibits. we are convinced that

Hammons did make a submissible case under section | of the

Sherman Act but did not make a submissible case under section

2 of the Act; and that the trial court should have granted the

motion for a directed verdict made at the close of all of the

evidence as to section 2. That motion stated, in part, that

pen, Dee

“Hammons has not established by sufficient competent

evidence a violation of . . section 2 of the Sherman Act by

Agrashell.”

A. Section 1

Section 1 of the Sherman Act proscribes contracts in

restraint of trade or commerce. Hammons claims that the

written. contracts with Pangborn and Wheelabrator and the

“Statement of Policy’® used with Agrashell’s sales agents as

heretofore described, and the alleged illegal use of the patent in

those contracts, constituted restraint of trade, and that as a

result of those alleged contracts in restraint of trade, it was

damaged by loss of business. Agrashell claimed that the contract

with Wheelabrator did not require Wheelabrator to deal

exclusively in Agrashell’s SGA; that the requirement to that

effect in the contract with Pangborn terminated upon the

expiration of the patent; that the “‘Statement of Policy” was

not a contract but-a unilateral declaration by Agrashell which

could not be and was not enforced; that in any event Pangborn,

Wheelabrator and the other sales representatives were not

purchasing for resale but merely selling as agents for the

account of Agrashell with Agrashell retaining title to the goods

until delivery to a buyer and therefore under United States v.

General Electric Co., 272 U.S. 476 (1926), such sales agency

agreements with price fixing provisions were legal, especially in

view of the patent and the presumption of validity that

attached thereto prior to its expiration; and that before

recovery can be had under section 1 of the Sherman Act,

Hammons must prove damages with a reasonable degree of

certainty resulting from the alleged illegal contracts. While there

is much merit in several of these allegations by Agrashell, we

cannot say that the evidence was insufficient for the jury to

6. Although the trial judge commented that the “Statement of Policy”

pertained to the intent issue under section 2. Hammons’ proof also

presented the “Statement of Policy” in terms of section |

5 MS ee ROA ATT AACE

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find that son Regeborn and: RSH SENT ee:

violative of section | of the Sherman Act......

=5 Baers

First. .we.comebde Ahet. Memenneindiniied te aia

Statement of Policy established either formal or informal

contractual relationships with Agrashell and its agents in the

market place. Hammons called no agents to testify as to their

relationships with Agrashell, but relied solely on Agrashell’s

correspondence which indicates that the Statement of Policy

was sent to a number of agents. In contrast, there was only one

letter which tends to prove that Agrashell would not deal with

an agent unless he agreed to the Statement of Policy. Moreover,

some of the correspondence clearly indicates that Agrashell

dealt with the agents whether or not they agreed to the

Statement of Policy.

More significant, in terms of the practical application of the

Statement of Policy in the market place, is the testimony of

two Agrashell agents allegedly subject to the Statement of

Policy. William T. Hall, chairman of the board of the C. P. Hall

companies, together one of the largest if not the largest

Agrashell agent, testified that he had never seen nor heard of

the Statement of Policy. He further testified that he did not

consider himself bound to deal only with Agrashell. and that he

did deal in other types of SGA such as corn cob SGA and glass

SGA. John C. Lorenzen, a partner in the Russ-Cattell company,

likewise testified that he had never seen the Statement of

Policy. Furthermore, Lorenzen testified that he handled other

types of SGA.

Second, Agrashell strenuously argues that the Wheelabrator

contract with its price fixing provision was legal when viewed in

light of the doctrine promulgated in United States v. General

Electric Co., supra, 272 U.S. at 488. General Electric stands for

the proposition that a patent holder does not violate the

antitrust laws by seeking to dispose of his products directly to

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** the congamer and fixing the price by which his agents transfer

- the title from him directly to the consumer. On the other hand,

General Electric does not allow the patent holder to sell his

of prodact-to a person‘and'then control the resale price. Assuming

|. that:the Wheelabrator contract was a contract of agency, see

«RESTATEMENT (SECOND) OF AGENCY $§ 14) (1958), we

think -that whatever protection General Electric afforded the

‘Wheelabrator contract ended when the patent expired. See

generally R. NORDHAUS and E. JUROW,

PATENT-ANTITRUST LAW at 147-166 (Nordhaus Ed. 1972).

Cf. Simpson v. Union Oil Co., 377 U.S. 13, 21-24 (1964). Since

it was clear that the Wheelabrator contract was in effect

continuously from 1950, we think the jury could have correctly

concluded that the Wheelabrator contract extended the life of

the patent beyond the expiration date and constituted a

contact in restraint of trade.

Third, the Pangborn contract, negotiated prior to the

expiration of the patent, extended the power of the patent

beyond the life of the patent. The contract provided:

“If, after June 10, 1964, PANGBORN furnishes written

evidence of its ability to purchase blast cleaning aggregates

made from nut shells of equal quality and-at lower prices

than AGRASHELL’S selling prices to PANGBORN.

AGRASHELL shall have the privilege of either meeting such

prices as quoted from a bona fide supplier or permitting

PANGBORN to purchase its requirements elsewhere after

first tendering the order to AGRASHELL in writing.”

Since the Pangborn contract was negotiated prior to the

expiration of the patent, but extended past the expiration of

the patent:

“{Alny attempted reservation or continuation in the

patentee or those claiming under him of the patent!

monopoly alter the patent expires. whatever the lega!

- device employed, runs counter’ to the ‘policy and purposes

of the patent laws...” Scort: ‘Paper’ Co. °¥: Marcalus

Manufacturing Co., 326° U8. 249, 256 NESS) Secon.

Brulotte v. Thys'Co., 379 US. 29, oY (1964).

The Supreme Court, when faced with a ssinviet similar

provision, has noted the antitrust implications:

“The appellant had at all times 2 priority on the business at

equal prices. A competitor would have to ‘undercut

appellant’s price to have any hope of capturing the market,

while appellant could hold that market by merely meeting

competition. We do not think this concession relieves the

contract of being a restraint of trade, albeit a less harsh one

than would result in the absence of such a provision. ...”

International Salt Co., Inc. v. United States, 332 U.S. 392,

397 (1947).

As a consequence, we conclude that the jury was entitled to

find that the Pangborn contract extended the life of the patent

unlawfully and constituted a contract in restraint of trade.

Turning now to Agrashell’s argument that Hammons failed to

prove the fact of damage resulting from the use of the contracts

and Statement of Policy. it should first be noted that its expert

testimony concerning its damages and the computation thereof,

does not include any reference to any loss of business which it

once had, but only business which Agrashell had during the

entire period in question and which Hammons felt that it

should have had. In this respect this case is analogous to the

case of Herman Schwabe, Inc. v. United Shoe Machinery Corp.,

297 F.2d 906, 910 (2d Cir.), cert. denied, 369 U:S. 865 (1962).

in which Judge Friendly noted as follows:

“Plaintiff's theory here was not that acts by defendant

had uniawtully deprived it of something it previously

possessed tt suld not well have been so since there was

oo pothing to indicate that defendant's conduct had. changed

eal ie me the worse during the damage period or, indeed, since

yy plaintiff was organized, and plaintiff's original investment of

$10,000 had produced an earned surplus of over $300,000

. by 1961, after substantial salary payments to Mr. Schwabe,

.. its. sole .stockholder. and. dividends. Plaintiff's evidence,

therefore, was necessarily directed to attempting to show

how defendant had unlawfully deprived it of business it

.. Might otherwise have secured. It was entirely competent for

plaintiff to seek to show this ....”

Indeed, the evidence showed that both Agrashell and Hammons

prospered during the period in question and made overall gains

in the sale of their nutshell products.

Hammons’ evidence of damages was adduced from the expert

testimony of Dr. Kuhlman during which the charts summarizing

the damages were submitted. Briefly stated, Dr. Kuhiman first

gave his opinion that Agrashell had erected barriers around a

portion of the hard nutshell SGA market. These barriers were

the patent, the patent litigation, price fixing, and exclusive

dealing arrangements. He then looked for a portion of the

market where those barriers were not present or at least not a

factor and chose the Columbus, Ohio SGA market. The sole

customer in this market was Western Electric. Both “.arashell

and Hammons sold to Western Electric, Hammons selling direct

and Agrashell selling first by agents and later direct. Having thus

found what he considered to be a market without barriers, he

determined ‘that over a period of years Hammons had 60

percent and Agrashell had 40 percent of the SGA business in

that market. He then concluded that therefore Hammons

should have 60 percent of all of Agrashell’s SGA business which

it conducted through its principal agents. He figured Hammons’

damages by taking the average price at which Agrashell sold in

the Columbus market, multiplied by 60 percent of Agrashell’s

volume with its dealers and deducted therefrom the amount for

which Hammons sold the same volume of material as LCM. His

SERA ANI Re ESE,

DERE BIEL OLS

— Zi —

theory in this regard was that it the bartiers had ‘not existed

Hammons, would have been able to sell this substantial quantity

of material as SGA at $109 per ton average rather than as LCM

at $83 per ton average and that therefore Hammons’ damages

were $26 per ton of 60 percent of the tons which Agrashell sold

through its dealers, or a total of $160,924.55. This approach,

although unique, has many practical defects.

The first defect is in the use of the Columbus market as a fair

example of what might have happened nationwide in the

absence of the barriers. In the first place, there was only one

customer in the market, and it bought in substantial quantities

as distinguished from most of Agrashell’s customers who bought

in smaller quantities from stocks shipped into warehouses for

distribution by agents. Secondly, there is no evidence as to

whether or not that customer bought only from Agrashell and

Hammons or also from other suppliers. More importantly, the

evidence is clear that Agrashell sought to sell to Western

Electric, SGA composed of both black walnut shells and apricot

pits while Hammons offered a product composed of only black

walnut shells. The evidence also establishes that Western

Electric was a sophisticated buyer and may not have always

used the two products interchangeably.’

Dr. Kuhlman acknowledged that in making his estimate of

damages he had not considered the impact of sales of SGA by

companies other than Agrashell and Hammons. Even assuming

that the alleged barriers kept Hammons from its fair share of

the market, it is difficult to understand how anyone could

reliably determine what share Hammons should have had

without knowledge of the market shares other competitors

might have captured.

7. Evidence that Western Electric did not consider the products

interchangeable is the fact that during the three years that Agrashell made

no sales in the Columbus market (1963-1965). Hammons’ sales did not

increase as a result

a =

In addition, Dr. Kuhiman did not explain why Agrashell’s

anticompetitive conduct. which was supposedly so

in other places, was not effective in the Columbus

Apparently one reason for selecting the Columbus

market was the fact that both Agrashel! and Hammons had been

in some sort of competitive relationship for a number of years.

The failure to explain why the Columbus market was isolated

from Agrashell’s conduct is highly suspect considering some of

the evidence adduced at the trial. For instance, in 1962 when

Agrashell did use an agent in the Columbus market and when

the patent was still viable Hammons sold 111 tons of SGA and

Agrashell 47. In 1963 when Agrashell wrote to Western Electric

using the words “patent protected soft grit abrasive,” a

technique which Kuhlman specifically labeled as a “barrier,”

Hammons sold 98 tons of SGA and Agrashell sold none. Still

further in 1967 and 1968, long after the patent expired and

long after Agrashell had ceased doing business with an agent in

the Columbus market, Hammons’ sales fell dramatically with

Hammons selling 29 tons in 1967 to Agrashell’s 114.325 tons,

and 54 tons in 1968 to Agrashell’s 127.25 tons.

2

In applying the percentages derived from the Columbus

market, to the national market serviced by Agrashell’s agents.

Hammons’ expert witness seemingly ignored critical differences

between the two markets. In the Columbus market shipments

were made direct in large quantities, thereby allowing Hammons

to compete without agents or warehouse facilities. Most of

Agrashell’s ultimate customers, serviced by its agents, bought in

smaller quantities after Agrashell had established regional

warehousing permitting prompt delivery of various sizes and

types of its products. Hammons sold direct, or to jobbers for

resale from warehouses owned by the jobbers, or by

manufacturers’ representatives with orders shipped direct from

Hammons’ plant. Hammons did not maintain regional

warehouse facilities in order to service these smaller orders.

The evidence indicates that Hammons’ representatives visited

Pangborn in 1958 and 1962-——both visits apparently coming

before Pangborn was an Agrashell agent. There was also

correspondence with Pangborn in 1961——before Pangborn was

an Agrashell agent. Hammons made no attempt to solicit the

business of C. P. Hall of Ohio. Apparently the only attempt to

acquire the business of C. P. Hall of Illinois was the sending of a

sample to Hall after Hall called Hammons after receiving a form

letter solicitation. No further attempt was made to contact Cc. P.

Hall of Illinois. It is noted that the C. P. Hall companies

combined composed well over one-third of the business

Hammons claimed to have lost. Solicitation of the Wheelabrator

business involved sending two letters in response to a form

letter from Wheelabrator trying to sell a machine to Hammons.

The evidence indicates that Wheelabrator actually bought SGA

from Hammons; some four to five 50 pound bags. This evidence

tends to indicate two things. First, Hammons’ sales efforts were

rather ill-suited to acquiring the business of Agrashell agents.

Second, when Hammons did try to solicit the business of the

agents, at least C. P. Hall and Wheelabrator either bought or

expressed an interest in the Hammons’ product, and apparently

did not consider themselves bound to deal only with Agrashell.

This conclusion is strengthened by the testimony of Hammons”

own vice president that he could not recall ever being told by an

Agrashell agent that 1 could not deal in a Hammons’ product

because of the Perry patent or the Statement of Policy

More importantly, there was no evidence tending to show

why Hammons could not sell direct or through agents to the

ultimate consumers who were purchasing from Agrashell

through Agrashell’s agents. It is clear that the so-called barriers

did not stop Hammons from selling a similar product to Western

Electric, or to the automobile manufacturers in the Detroit area

where it had 100 percent of the SGA market It is also clear

that Agrashell’s ultsmate consumers were paving higher prices

than Hammons was receiving 1m tts sales to Western Flectrn

which should have made easict tor Hammon tk: compete for

this business.8 One conclusion that could be reached is that the

+ ‘thing’ that ‘kept Hammons from selling to the ultimate

“serviced ‘by “Agrashell’s agents from Agrashell’s

‘warehouses is either the failure of Hammons to actively solicit

‘the ‘ business or its failure to maintain regional warehouse

facilities to permit prompt delivery of small quantities of a

variety of sizes of SGA. The evidence discloses very little active

solicitation of Agrashell’s ultimate consumers by Hammons, and

the premise of Dr. Kuhlman that Hammons would have

obtained 60 percent of their business except for the alleged

barriers is highly questionable in light of these facts.

We also note that Dr. Kuhiman based his damage estimate on

the implicit assumption that the patent and the patent litigation

constituted illegal barriers in addition to the exclusive dealing

and price fixing provision of the contracts. The assumption that

the patent was an illegal barrier prior to its expiration was

conclusively negated when the trial judge ruled that the patent

had not been fraudulently procured. Likewise the assumption

that the patent litigation constituted a unilateral attempt to

monopolize and thus an illegal barrier is negated by our finding

later in this opinion that Hammons failed to make a submissible

case of an attempt to monopolize. Thus two of the four

structural supports of Kuhiman’s damage theory were highly

questionable.

We have described some of the serious failings of Dr.

Kuhiman’s damage testimony to indicate our hesitancy to allow

a jury to assess damages upon such a theory:

8. When Dr. Kuhiman was asked why Hammons failed to attempt to sell

to Agrashell’s ultimate consumers, he was unable to explain other than by

vaguely referring to restrictions wherever Agrashell sold through an agent.

To the contrary. Dr Poe. Agrashell’s expert could find nothing in the

agreements «» Statement of Policy which would impose a barrier to the

ultemate consumer tn tact. «| Agrashell help up its price ut should be

expected that another seller could come in and sell at a lowe: price

seein Pree.

“[P] roof of an isolated violation of substantive law will not

entitle defendants to an affirmative recovery. Before a party

is entitled to recover treble damages he must be able to

plead and prove actual monetary injury to his business or

property resulting from the illegal act. ... it has long been

the law that damages which are purely speculative, remote,

or based upon conjecture cannot serve as a base for antitrust

recovery. ...” American Infra-Red Radiant Co., Inc. v.

Lambert Industries, Jnc.. 360 F.2d 977, 995-996 (8th Cir.

1966).

Our critique of this damage formulation must be tempered,

however, by the Supreme Court’s statements relating to the

proper function of an appellate court when reviewing damage

evidence. As the Supreme Court has forcefully stated:

“{An antitrust plaintiffs] burden of proving the fact of

damage under Section 4 of the Clayton Act is satisfied by

his proof of some damage ... inquiry beyond this

minimum point goes only to the amount and not the fact of

damage. It is enough that the illegality is shown to be a

material cause of the injury: a plaintiff need not exhaust all

possible alternative sources of injury in fulfilling his burden

of proving compensable injury under Section 4.~ Zenith

Radio Corp. v. Hazeltine Research, Inc.. 395 U.S. 100, 114

n.9 (1969).

The Supreme Court has consistently reminded critics of damage

formulations that an antitrust violator may not properly

complain about damage proof vagaries when such ambiguity

results from the illegal act itself. See e.g., Bigelow v. RKO Radio

Pictures, Inc.. 327 U.S. 251, 265 (1946); Eastman Kodak Co. v.

Southern Photo Materials Co., 273 U.S. 359. 379 (1927). With

these principles in mind we cannot say that as a matter of law.

Dr. Kuhlman’, theory failed to demonstrate the fact or

a pl

quantum. of damage with sufficient clarity. For these reasons

anne amen 8 Beat eran aene.

fice incicded sinus aot end:with ‘this Uindlig howsver: The

award of litigation damages allegedly incurred by Hammons

when Agrashell filed certain infringement suits must stand or

fall on whether the jury could properly conclude that Agrashell

“attempted to monopolize” under section 2 of the Sherman

Act. It is clear that the act of filing the infringement suits is a

unilateral act and section 2, in contrast with section 1, is the

proper method to test unilateral activity such as that involved in

this case:

“The Congress which wrote the Sherman Act directed

its main thrust against business conduct involving two or

more parties. Section 1, proscribing every ‘contract,

combination or conspiracy’ in restraint of trade, is strictly

confined to joint action. Section 2 covers both individual

and joint action ....” Turner, The Definition of

Agreement Under the Sherman Act: Conscious Parallelism

and Refusals to Deal, 75 Harv.L.Rev. 655 (1962).

B. Section 2

Section 2 of the Sherman Act makes it unlawful to

“monopolize, or attempt to monopolize, or combine or

conspire with any other person or persons, to monopolize any

part of the trade or commerce among the several States * * *.”

Hammons claimed that Agrashell attempted to monopolize the

SGA and the LCM markets although its proof relating to

attempted monopolization of the LCM market was quite

limited, and during the course of the trial and in its instructions

the district court indicated that evidence of Agrashell’s actions

as to LCM was relevant only to the issue of intent.

In addition to proving an overt act or acts, the essential

elements which must be proved in a section 2 attempt to

er apeny

aw St ==

: ; $3 eae any rie

See Swift and Co. v, United States, 196 U.S. 375, 396, 402

(1905); Kansas City Star Co. v. United States, 240 F.2d 643,

663 (8th Cir.), cert, denied, 354 U.S. 923 (1957); Hibner,

Attempts to Monopolize: A Concept in Search of Analysis, 33

A.B.A.J. 165, 1966 (1967); Smith, Attempt to Monopolize: Its

Elements and Their Definition, 27 Geo. Wash. L. Rev. 227,

229-231 (1957). ‘

Although we do not rest our decision relating to section 2 on

this issue, we note that the evidence presented at trial with

regard to “specific intent” bordered on being insufficient as a

matter of law. The issue before the jury was whether Agrashell

specifically intended to monopolize hard nutshelis within the

soft grit abrasive markets by seeking to extend the patent

beyond its terms or by extending the life of the patent.

At the outset, we emphasize that the trial court did not

submit the issue of fraudulent procurement of the patent to the

jury and no cross-appeal was taken on that issue. Thus the

declaration of patent invalidity did not prohibit Agrashell from

relying on the presumptive validity of the patent. It therefore

had every right to bring each of the three lawsuits against

Sirotta, Hammons, and Block if its purpose in each case was

merely to enforce its rights under the patent. The obvious and

difficult problem in this case relates to differentiating between

Agrashell’s intent to bring suits and enter into contracts under a

presumptively valid patent, thereby enforcing and utilizing a

lawful monopoly, and its alleged intent to bring suits and enter

into contracts under a presumptively valid patent for the

purpose of extending the scope of the patent beyond the grant

allowed by law. The proof of that alleged illegal intent is thin

indeed.

The evidence in this case indicates quite clearly that

Hammons sold a product that, but for the declaration of

invalidity, would have infringed Agrashell’s patent; that Sirotta

a

sold the Hammons product, which, as the trial judge indicated,

wis” an’ “admittedly infringing™ one: that Gravette and Block

also sold an SGA product which was composed of black walnut

shell and that Pangborn at one time merchandised Gravette’s

product; and that Sirotta’s patent counsel and Pangborn’s

patent counsel could not find sufficient grounds for challenging

the patent on the grounds the patent was subsequently declared

invalid.

Much of Hammons’ case rested on the deposition testimony

of Sirotta relative to Ayers’ statement that Sirotta “had no right

in the walnut shell business. This is my domain.” It is noted

that when this statement was made Ayers had already filed his

infringement suit and placed the infringement issue before a

court. Moreover, it was Sirotta and not Ayers who precipitated

the meeting at which the statement was allegedly made.

Understandably we are hesitant to attach much significance to

this statement.

We are also hesitant to attach any significance to the evidence

which indicates that Agrashell sued Hammons in retaliation for

Hammons underbidding Agrashell on an LCM account or to

evidence which tends to indicate that Agrashell sued Block

because Block would not agree to maintain prices in the LCM

market.

We question this evidence because, although Hammons

pleaded an attempt to monopolize the LCM market, the

relevant markets which were the subject of the attempt to

monopolize as defined by the trial judge were solely the SGA

markets. Hammons does not question this instruction. Indeed

by supplemental brief Hammons argued that it need not prove

“dangerous probability” in the LCM markets precisely because

of the judge’s limited instruction. Although Hammons contends

that the LCM intent evidence somehow relates to the issue of

intent in the SGA market, we attach little significance to

conduct related to a totally distinct product being sold in a

different geographic market. .

se

We turn next to an analysis of whether or not Hammons

proved “dangerous probability” of monopolization. Ae See

“The phrase ‘attempt to monopolize’ means the

empbyment of methods, means and practices which would,

if successful, accomplish monopolization, and which,

though falling short, nevertheless approach so close as to

create a dangerous probability of it * * *.” American

Tobacco Co. v. United States, 328 U.S. 781, 785 (1946);

Central Savings and Loan Ass'n v. Federal Home Loan Bank

Board, 422 F.2d 504, 509 (8th Cir. 1970); Hiland Dairy,

Inc. ». Kroger Co., 402 F.2d 968, 971 (8th Cir. 1968), cert.

denied, 395 U.S. 961 (1969): Kansas City Star Co. v. United

States, supra.

Thus in this case we must determine whether Hammons

presented sufficient evidence from which the jury could

properly conclude that Agrashell approached “‘so close [to

monopoiization] as to create a dangerous probability of it * *

*.” American Tobacco Co. v. United States, Supra, 328 U.S. at

785.

In Welker Process Equipment, Inc. v. Food Machinery &

Chemica! Corp.. 382 U.S. 172 (1965), the Supreme Court held

that enforcement of a fraudulently procured patent may violate

section 2 of the Sherman Act provided all other elements are

established. This case relates to extending a patent beyond its

lawful bounds, but we think the same considerations expressed

in Walker Process are applicable here. Those considerations are

essentially that, even though one possesses a fraudulently

procured patent or a patent which is allegedly used in a way to

enlarge its scope or life, an analysis of market factors is still

necessary. Indeed, the Court specifically stated that the trial

court had not “analyzed any economic data” when it reversed.

Id at 178. Thus it is not enough to argue that one has used a

patent in a predatory manner thereby enlarging the scope or life

of the patent. one must look to economic data tu determine the

ee,

Pelee the pewreted Aantadtity on the pleases mataich is

an ane pINt as moeniolee::

wit: Fo eutibligh nenepolization or attempt to monopolize

bass: ss cahalieaiadndeemmiacen ended § 2 of the Sherman Act,

- sit would then be necessary to appraise the exclusionary

-spower of the illegal patent claim in terms of the relevant

‘market for the product involved. Without a definition of

that market there is 10 way to measure Food Machinery’s

ability to lessen or destroy competition.” Walker Process

Equipment, Inc. v. Food Machinery & Chemical Corp.,

supra, 382 U.S. at 177. See also Bernard Food Industries,

lac. v. Dietene Corp., 415 F.2d 1279, 1284 (7th Cir. 1969),

cert. denied, 397 U.S. 912 (1970).

The counterclaim filed by Hammons indicated the product to

be “ground black walnut shell,” and in submitting the matter to

the jury the trial court referred to “the soft grit abrasive

industry” and “hard nutshells within the soft grit abrasive

markets.” The patent refers to “‘an abrasive material comprising

pelletized nut shells having the hardness of black walnut shells.”

Our conclusion is that while the exact definition of the product

is elusive, the proof primarily related to crushed black walnut

and apricot pit nutshell used as SGA.

Assuming that the product was thus defined, the definition

of the geographic market is even less explicit. Since no attempt

was made to narrow the geographic area, we assume the relevant

market area is the entire United States. However, no market

data was introduced showing the total volume of sales of hard

nutshell SGA in the United States or any specified portion

thereof; therefore, it is difficult, if not impossible, to know

exactly what geographic market Hammons claims Agrashell

attempted to monopolize. The two principal submarkets

identified by Hammons were Detroit, Michigan and Columbus,

Ohio. In Detroit. Hammons apparently had the entire market.

and in Columbus, it had a larger share than Agrashelil.

+ eR Oat tists wtemenian NS

Not only did Hammons fail to show |

of SGA, it also failed to show what shares of that market were

held by Agrashell, Hammons, and ‘several’ other major

competitors.? Continental was relérted to ‘as one” ct ne fi:

largest companies in the field but no evidence ‘was introduces

relating to its volume of sales. Only by associating

disconnected and at times contradictory portions of the

evidence is it possible to piece together the respective sales of

- Agrashell and Hammons.

Hammons’ pleadings attempted to structure the relevant

market to include LCM, but by supplemental brief Hammons

agreed that LCM was not within the markets the jury was

instructed to consider as being the target of the attempt.

In conclusion, we view the evidence relating to “dangerous

probability” in this case much as Judge Brown viewed the

evidence in Becker v. Safelite Glass Corp., Inc., 244 F. Supp.

625, 638 (D. Kan. 1965), in which he noted as follows:

“In the case at bar, plaintiff is unaware of the total

annual volume. of commerce * * * in the relevant market

area; the portion or percentage of that volume held by

defendants; the portion or percentage of that volume held

by the plaintiffs; and the portion or percentage of that

volume affected by any activities of the defendants * * *.

ss ¢

“Without the facts and evidence which plaintiff admittedly

does not have. a § 2 Sherman case simply cannot, in our

opinion, be established.”

9. Of the three manufacturers sued or threatened with suit by Agrashell

(Block, Gravette, and Hammons), Block continued to produce SGA

throughout the periods relevant here, Hammons sales nearly doubled, and

Hammons acquired the controlling interest in Gravette in 1966.

—~-—-.

Perea eee

———!_

aren. _

ERAN A Be SONI UR rai ss + is

— 32—

She eee

hep Central Savings and Loan Ass'n v. Federal Home

Loan Bank Board, supra: Hiland Dairy, Inc. v. Kroger Co.,

supra; Kansas City Star Co. v. United States, supra; Cornwell i

Quality Tools Co. v. C.T.S. Co., 446 F.2d 825, 832 (9th Cir.

1971), cert. denied, 404 U.S. 1049 (1972); Hibner, Attempts to ;

Monopolize: A Concept in Search of Analysis, 33 A.B.A.J. 165,

171-177 (1967).

We are aware that the case of Lessig vy. Tidewater Oil Co., 327

F.2d 459 (9th Cir.), cert. denied, 377 U.S. 993 (1964), is not in j

accord with the result we have reached in this case, but we :

choose not to follow its rationale,!° especially in view of the

fact that the case of Walker Process Equipment, Inc. v. Food

Machinery & Chemical Corp., supra, was decided by the a)

Supreme Court subsequent to the Lessig case and in view of the

decisions of this Court hereinbefore cited.

Other Alleged Errors

Agrashell claims that Hammons’ recovery of litigation

expenses was barred by principles of res judicata -and

compulsory counterclaim. Our resolution of the sufficiency of

proof with regard to section 2 of the Sherman Act obviates the

necessity of resolving this issue with regard to litigation expense

damage. Likewise errors allegedly made in instructing the jury

with regard to litigation damages need not be discussed.

Agrashell further argues that Hammons’ section | claims

should have been pleaded as a compulsory counterclaim in the

first infringement suit filed by Agrashell against Hammons in

the Western District of Missouri. However, we think that the

4 instant case is controlled by Mercuvid Corp. v. Mid-Continent

4 Co., 320 U.S. 661, 671 (1944). which indicates that cases such

10. The strength of the Lessig rationale in the Ninth Circuit is

r questionable. See Bushie v. Stenucord Corp., 460 F.2d 116, 121 (9th Cir.

1972); Cornwell Quality Tvols Co. v. C.T.S. Co., supra.

as this one involve permissive, not compulsory, counterclaims.

Furthermore, since the first suit was dismissed because “of

Agrashel!’s failure to join an indispensable party, since no

judgment on the merits was had, and since Agrashell: was

explicitly allowed to file a new action, which it elected to do,

no injustice has resulted from permitting the filing of the

counterclaim in this action.

Agrashell argues that the instructions were in error because of

a failure to adequately define Agrashell’s agency arrangements.

We do not think that if any error occurred that it was

prejudicial, and our resolution of the section | claim assumes

that valid agency relationships existed. Agrashell further argues

that it was an abuse of discretion to relieve Hammons of its

waiver of jury trial. Due to the complexity of this case and the

fact that Hammons changed from patent counsel to antitrust

counsel during the varying procedural phases of this case we do

not think that such a decision was an abuse of discretion. See

generally, 9C. WRIGHT & A. MILLER, FEDERAL PRACTICE

AND PROCEDURE § 2334 at 123 (1971).

Agrashell next argues that it was an abuse of discretion to

allow Hammons to deviate from a pretrial narrative statement

by introducing into evidence the deposition testimony of Cox

and Sirotta. Rule 16 of the Federal Rules of Civil Procedure

allows for modification of a pretrial order to prevent manifest

injustice. The trial judge explicitly indicated that he was acting

in the interest of justice and fair play in allowing the deposition

testimony, and indicated that the testimony might well have

not been available earlier because the parties were in litigation

in 1967 and could have been reluctant to speak. We do not

think that the decision in this case was an abuse of discretion.

See generally, 6 C. WRIGHT & A. MILLER, FEDERAL

PRACTICE AND PROCEDURE § 1527 at 608 (1971): Cf

Labbee v. Roadway Express, Inc., 469 F.2d 169, 172 (8th Cir.

1972).

ee Rare uae a

_eodFinally, Agrashell -argues that it was error to exclude its

\vevidence: of settlement. offers made to Hammons after the filing

«oof; the: suit.. The trial judge indicated quite clearly that he was

afraid the probative value of this evidence was outweighed by

‘the: prejudicial impact the evidence might have had on the jury.

We. think: the judge’s decision in this respect was carefully

considered and not error. Other allegations of error raised in the

briefs have been considered, but in our opinion are not valid

and do not require comment.

ee

Conclusion

lt Yl al UII er ee

We affirm that part of the judgment awarding Hammons

$41,750.00 trebled in the amount of $125.250.00. The

remaining judgment, consisting of litigation expense damages, is

reversed with directions to dismiss that portion of the case.

Attorneys’ fees and costs in the prosecution of this case should

be redetermined by the district court and substantially reduced

to an amount more in keeping with the revised judgment.

A true copy.

Attest:

Clerk, U.S. Court of Appeals, Eighth Circuit.

Cy ee

ee

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APPENDIX B

AGREEMENT

THIS AGREEMENT, made and entered into this Ist

day of November, 1950, by and between AGRASHELL,

INC. incorporated according to the laws of the State of

Delaware and having a place of business in the City of

Los Angeles, California, hereinafter designated as “Agra-

shell”, and AMERICAN WHEELABRATOR & EQUIP-

MENT CORPORATION, incorporated according to the laws

of the State of Delaware and having a place of business in

the City of Mishawaka, Indiana, hereinafter designated as

“American”,

WITNESSETH THAT:

WHEREAS, Agrashell is engaged in the manufacture

and sale of a non-metallic blast grit, composed of crushed

nut shells and like materials, which product is known as

“Shelblast”, and

WHEREAS, American is engaged in the manufacture

of centrifugal blast cleaning machines and other types of

equipment for cleaning, de-flashing and surface treating

of metals, plastics and various other materials, and is

vitally interested in and concerned with the matter of

having users of such equipment constantly and regularly

supplied with adequate amounts of abrasive of the type

and kind required and best suited for the successful, ef-

ficient, and proper operation of such equipment; and

WHEREAS, American desires to act as del credere

factor in the manner and to the extent herein defined for

the sale of Shelblast, as herein defined, made by Agrashell,

and Agrashell is willing to have American so act;

NOW, THEREFORE for valuable consideration, the

receipt of which is hereby acknowledged by each and all

of the parties hereto, it is agreed by and between the

parties to this agreement as follows:

1. Agrashell hereby appoints American as a del

credere factor for Agrashell with authority to sell and

service Shelblast, as herein defined, without territorial limi-

tation, for the period and subject to the terms, conditions

and provisions hereinafter set forth.

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the del credere factor for Agrashell, with authority as afore-

said and agrees to comply with and perform the terms and

conditions to be performed by it, as stated herein.

3. American is hereby authorized to sell Shelblast,

manufactured and produced by Agrashell, to all classes of

users, except the rubber industry, the dental supply in-

dustry and the ornamental jewelry industry, said users

employing either dry or wet blast methods for cleaning,

de-flashing or surface treatment of metals, plastics and

other materials, at prices as provided in paragraph No. 10

hereof.

4. Each sale made by American of the products of

Agrashell, herein referred to, shall be made in the name of

American, and American agrees, as part of the consideration

for the compensation herein provided for, that it will bill

and collect for all shipments made by Agrashell, pursuant

of orders obtained by American; and American is hereby

authorized to do so.

5. Agrashell agrees that it will accept and fulfill all

orders for Shelblast obtained by American and trans-

mitted to it by American, and will promptly ship Shelblast

in fulfillment of such orders, provided, however, that

Agrashell shall be excused from performance of the re-

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quirements of this paragraph, to the extent and so long as

prevented therefrom by reason of strikes, fires, delay of

carriers, acts of God and the public enemy, restrictions

3 imposed by competent governmental authority, or other

; reasons beyond the control of Agrashell. If, for any of the

; foregoing reasons Agrashell is unable to fulfill orders, it

: shall immediately so notify American and American shall

then be free temporarily to obtain similar materials for its

: requirements from other sources.

6. The parties hereto mutually agree that it is ex-

pressly contemplated that American will not be required to —

maintain any inventory upon consignment, or otherwise, of

Shelblast manufactured and produced by Agrashell, and

that all shipments made by Agrashell, in fulfillment of

orders obtained by American, and transmitted by it to

Agrashell, shall be shipped directly by Agrashell to the

buyer or buyers of such Shelblast from whichever plant or

warehouse operated by Agrashell will provide the most

advantageous transportation rates for the customer.

7. Agrasheli agrees that it will pay to American, as

compensation of its services as del credere factor, with

respect to sales of Shelblast manufactured and produced by

Agrashell, and for its services in directly or indirectly pro-

moting the sale of and servicing the products of Agrashell

and generally for all services to be rendered by American

under the terms of this agreement, a sales commission on

the sale of Shelblast amounting to Percent of the

selling price.

8. Agrashell hereby agrees to grant to American

a Percent discount on the selling price of all Shelblast

ordered by American for use in its own plant for demonstra-

tion, experimental or research purposes.

9. As part of the obligation as a del credere factor,

American guarantees the due and prompt payment of all

apeneniananeiaineiaaniael ee

amounts due and owing on account of all sales affected by

it; under the terms of this agreement, not later than the

25th day of the month following the month in which the

Shelblast produced by Agrashell is shipped by it in fulfill-

ment of orders submitted by American. Accounting and

settlement between the parties hereto shall be made in the

following manner:

Currently as shipments are made by Agrashell it will

notify American thereof. Such notice shall be in the form

of invoices, or other form as the parties hereto may agree

upon, which shall show the names of the parties or cus-

tomers to whom Shelblast has been shipped, the quantity

thereof so shipped, the price thereof and the amount of

commission on each shipment, and such notices shall be

accompanied by shipping documents. Agrashell agrees that

on or before the 10th day of each month it will send to

American credit memoranda, showing all commissions to

which American is entitled, on all orders for Shelblast

shipped and invoiced by Agrashell during the preceding

month, in accordance with the provisions of paragraph No.

7 hereof.

American agrees that on or before the 25th day of each

month, it will account to Agrashell for all amounts due to

Agrashell for all Shelblast, invoiced and shipped by Agra-

shell during the previous month, and at the same time

American will pay to Agrashell the amount shown by such

account to be owing by American to Agrashell, less any

amounts that may then be owing and due American by

Agrashell for commissions, in accordance with the pro-

| visions of paragraph No. 7 hereof, and as shown by the

memoranda previously submitted by Agrashell on or before

the 10th day of the same month as above provided.

10. The selling prices of Shelblast manufactured or

produced by Agrashell, which American is authorized to

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quote, and at which it is authorized to sell to customers,

Shall in all cases, be such as may, from time to time be

announced by Agrashell. Such prices shall not be higher

than those quoted or used by Agrashell or any other dis-

tributors, and Agrashell expressly agrees that it will not

quote or sell to consumers or users at lower prices than

which American is aythorized to quote, or at which Ameri-

can is permitted to sell Shelblast for Agrashell. Agrashell

shall notify American in writing of any changes in prices

ten (10) days prior to such date when such prices, as

changed, are put into effect. It is definitely understood that

Agrashell shall, at all times, have the right and power to

establish prices to consumers of the products manufactured

by it, herein referred to, which are sold or to be sold by

American as a del credere factor under the terms of this

agreement.

11. The terms of this agreement shall commence on

the date hereof and this agreement shall continue in force

between the parties hereto for an initial period of one (1)

year from and after this date, and this agreement shall

renew itself automatically for successive one (1) year

periods, on each yearly anniversary date from and after

the date of this agreement, unless cancelled by either Ag-

rashell or American by giving written notice to the other

party at least sixty (60) days prior to said anniversary

date, stating that it chooses to cancel this agreement, in

which case this agreement shall then terminate on the

next yearly anniversary date.

12. Should bankruptcy proceedings be begun by or

against either of the parties hereto, designated as Agra-

shell or American, or an assignment made by either for

the benefit of creditors, or a receiver, voluntary or invol-

untary, be appointed for either of the said parties hereto,

then and in such event, at the option of the other party,

this agreement shall become null and void.

SOI D Et BO LDR ASG i 2 ST a ila REET Deets See

_—

_ 18. Agrashell will protect American and hold it harm-

less by reason of any suits at law or equity, or for the in-

fringement of patents arising by reason of the sale of Shel-

blast manufactured by Agrashell.

14. This agreement shall be binding upon the suc-

cessors of the respective parties hereto, and shall not be

assigned by American, except to a person, firm or corpora-

“ ne eta ty at ALES eat afie

tion taking over the business and good will of American

in the manufacture and/or sale of Wheelabrators or like

machines, and such assignment shall only be made where

the assignee assumes all of the obligations of American

under the terms of this agreement, and agrees to faithfully

perform the same. Otherwise, this agreement shall be

assigned only by mutual consent.

15. Upon termination of this agreement, as provided

for in paragraph numbered 11 hereof, American immedi-

ately will cease accepting orders for Shelblast and will

have no further responsibility or obligation as a del credere

factor or sales agent of Agrashell.

16. This contract is made in contemplation of the laws

of the State of Indiana and shall accordingly be construed

in accordance with the laws of that state.

IN TESTIMONY WHEREGO: the parties hereto have

caused these presents to be signed, sealed and delivered by

their duly authorized corporate officers as of the day and

year first above written.

Attest: Agrashell, Inc.

/s/ John H. Linhardt By /s/ Joseph W. Ayers

President

Attest: American Wheelabrator &

/s/ C. R. Cline Equipment Corporation

4 By /s/ (Illegible)

President