United States Gypsum Company v. National Gypsum Company – Oral Argument – November 05, 1956

Media for United States Gypsum Company v. National Gypsum Company

Audio Transcription for Oral Argument – November 06, 1956 in United States Gypsum Company v. National Gypsum Company

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Earl Warren:

Number 11, United States Gypsum Company, Appellant, versus National Gypsum Company, et al.

Perhaps, Mr. Bromley, you — you might wait until they get to see if it’s in there.

Judge Bromley.

Bruce Bromley:

May it please the Court.

This is an appeal by United States Gypsum Company from a judgment entered in December 1954 by a three-judge District Court sitting in the District of Columbia.

The appeal involves a post-decree controversy between certain co-defendants in a government antitrust action.

After the final decree in the government suit, the appellant here, United States Gypsum Company, brought suit in 1953 against companies that had been its co-defendants in the prior government antitrust suit against the gypsum industry.

In those 1953 post-decree suits, USG asked compensation for the use that its co-defendants had made of USG patents.

In those compensation suits brought in 1953 against the appellees, National Gypsum and the Certain-teed Company, USG claims payment for patent use made by those companies in the period from March 8, 1948 to May 15, 1951.

Now, those two days coincide first with the entry in 1948 of the first decision by this Court in the government antitrust suit and the 1951 date with the date in which the final decree in the government suit was entered below.

So the period, the 1948-1951 period in question is a pendente lite period for which defendant, USG, sought after final decree to obtain compensation for the use which the co-defendants had made of its patents.

The 1954 judgment of the court below, the judgment from which this appeal is taken, orders modification of the 1951 final decree in the government suit to the extent that it now enjoins USG from the further prosecution of its pending lawsuits to recover compensation for the pendente lite use of the patents which — as co-defendants made before the entry of the final decree.

Since the judgment below inextricably wedge issues raised by these compensation suits and issues adjudicated by the 1951 decree, I am forced to give some history of the government suit because I believe it to be critically important to the present consideration.

The government antitrust suit against the gypsum industry was in the courts a long time.

The Government filed its complaint in 1940.The Government, in April 1944, finished putting in its evidence at the trial.

None of that evidence thus introduced in a trial in 1943 and 1944 related to events subsequent to 1941.

In other words, the record below ended with proof of facts up to 1941.

At the government trial, at the conclusion of its proof, as the Court may remember, the defendants moved under 1941 to dismiss the complaint on the ground that the Government had failed to raise a prima facie case.

That motion was granted by the District Court and was reversed here on March 8, 1948.

Immediately after the decision of this Court and as our co-defendants alleged because of it, appellees National and Certain-teed stopped paying any money to USG for the use they were then making of the USG patents.

Following remand from this Court’s decision of March 1948, the District Court suggested that the Government file a motion for summary judgment under Rule 56 and that the defendants file a proper approval.

That was done.

In June 1948, a majority of the court below granted the Government’s motion for summary judgment and in November 1949, in the midst of this pendente lite period, a final decree was entered.

USG appealed from that November 1949 final decree on the ground that we had a right to introduce material evidence and the situation was not proper for summary judgment.

This Court dismissed that appeal.

The reason for the dismissal was later stated by the Court to be as follows, and I venture to quote it because I think it’s important.

“This Court said we read the preliminary statement of the District Court to the decree and the summary decree itself as an adjudication of violation of the Sherman Act by the action in concert of the defendants through fixed-price licenses accepting as true, the underlying facts in defendants’ proof by proffer.”

The trial judges understood the summary judgment to be, as Judge Steven said, limited to that one disputed issue and that conclusion entitled the Government only to relief based on that finding and the proffered facts.

On that basis, we dismissed USG’s appeal from the decree.

Now, the Government had also appealed from that decree.

Bruce Bromley:

This Court noted jurisdiction.

The Government sought enlargement of some of the provisions of the decree and subsequent approval by this Court of some of those government proposals for modification of the decree below made it necessary to reverse the judgment of the District Court and to remand it for further proceedings below in conformity with the Court’s second opinion and required a recasting in some particulars of the 1949 decree.

So it was that on May 15, 1951, the District Court entered its final decree in the government suit.

No appeal was taken by anybody.

The article of that 1951 final decree, an article inherited from the 1949 decree, is particularly pertinent to this appeal and its Article IV.

It merely declares each of the patent license agreements, which had price fixing clauses in them, to be illegal, null and void.

The final decree, however, contained no injunction of any kind against suits for pendente lite compensation for a patent use.

Now, none of the proposed decrees or amendments thereto submitted to the District Court by the Government or by the defendants in connection with either the 1949 decree or the 1951 final decree or dealt in any way with the right of any person to sue, to — to use USG patents without compensation during the pendente lite period.

Indeed, the day after the 1951 final decree was entered, United States Gypsum wrote a letter to each one of its co-defendant licensees.

It said it indented to comply strictly with the provisions of the decree and referring to the old license agreements noted in the letter that their provisions have here — heretofore become and now are wholly canceled and of no effect.

In those letters, USG referred to the fact that royalties had not been paid under the patent license agreements since early 1948 nor, said USG, had it sought to collect them but if that had merely stood upon its right to be compensated for the reasonable value of any use which its co-defendants had made of its patents.

None of the defendants made any move anywhere to challenge the assertion of that right, either before the court below or otherwise.

Appellees National and Certain-teed subsequently made application under the compulsory licensing provisions of the decree for licenses under those patents and of course, they were promptly granted.

But when it became obvious in 1953 that these companies did not intend to pay or make any settlement for the pendente lite use of the patents, USG was the face — was faced with the alternative of bringing suit or forfeiting its rights.

Accordingly, in January and March of 1953, USG sued National and Certain-teed in the Northern District of Iowa, which was a court of entirely competent jurisdiction.

When USG determined to sue for this patent use in Iowa, it had to draft the complaint, I submit, to meet all factual situations that might develop upon the trial of that action.

And so it was that each complaint in those suits, which the court below by amendment is now ordered and dismissed with prejudice, so it was that each complaint in those suits contains several counts.

Count I is for royalties due, for actual use of the patents based on the royalty rate provided for under the prior license agreement between USG and the respective defendant which had been declared to be null and void.

Count II contains account for those royalties under that license agreement as amended according to the allegations.

A third count is included for recovery of reasonable compensation for the actual use of the patents after the license agreement was terminated, according to the allegations under circumstances from which the law would imply a promise to pay.

A fourth count is a count of quantum meruit for reasonable compensation for the use of the patents.

And finally, a count for infringement of the patents — under the patent laws of United States is asserted in those complaints.

Answers were filed by National and Certain-teed to any issue on all material averments and pleading especially among other things that each suit was barred by the declaration of illegality in the 1951 final decree.

Thereafter, commencing with the petition filed by National in March of 1953, each of the appellees had, by June 1953, filed separate petitions in the old statutory antitrust government court here in the District.

Now, the petition of National thus filed for relief against our suits, prayed that the suit brought against it for the actual use of the patents be enjoin.

Felix Frankfurter:

I didn’t catch.

Was the reference made to the Iowa suit?

Bruce Bromley:

Yes, sir.

There were answers made by the —

Felix Frankfurter:

(Inaudible) the claim of the defendant’s illegality by virtue (Inaudible)

Bruce Bromley:

Was asserted.

Yes, sir.

Felix Frankfurter:

And that the proceeding in the Iowa court rest there?

Bruce Bromley:

Stayed.

Felix Frankfurter:

Stayed?

Bruce Bromley:

Yes, sir.

Felix Frankfurter:

Pardon me.

Bruce Bromley:

Stayed.

Felix Frankfurter:

Well, the problem (Inaudible)

Bruce Bromley:

Yes, because of the —

Felix Frankfurter:

I mean —

Bruce Bromley:

It rested there.

Felix Frankfurter:

What was the date between the — between the defense and between the answer in the Iowa (Inaudible) this proceeding, were each more or less contemporaneous?

Bruce Bromley:

Yes, very promptly.

Felix Frankfurter:

All right.

Bruce Bromley:

Closely together.

Felix Frankfurter:

All right.

Bruce Bromley:

Now, the petition of National below prayed that the suits brought against it —

Harold Burton:

You said stayed, Mr. Bromley, stayed by the trial court in Iowa or stayed —

Yes, sir.

— by the Court here?

Bruce Bromley:

Stayed by the trial court in Iowa, sir, awaiting determination here.

And if National petitioned here, said that the Court ought to modify it —

Felix Frankfurter:

You mean — you mean in this suit in the district now?

Bruce Bromley:

No stay issued here, just the Iowa court issued its own stay.

Felix Frankfurter:

Now if it stayed — if the proceeding to await the outcome of this — of the proceeding below not awaiting what we do.

Bruce Bromley:

Oh, no, sir, of the proceeding below.

Felix Frankfurter:

All right.

Bruce Bromley:

Although they stay encompasses —

Felix Frankfurter:

Yes, I understand.

Bruce Bromley:

Now, the National petition —

Felix Frankfurter:

In other words, the Iowa court preferred not to deal with the merits of the claim of illegality as an answer to the suit.

Bruce Bromley:

Yes, sir.

Harold Burton:

Did this suit ask for an amendment of the old judgment (Inaudible)

Bruce Bromley:

Yes, sir.

The petitions below, which I now about to describe, asked for a further provision in the decree which specifically order us to dismiss with prejudice these pending compensation suits in Iowa.

Harold Burton:

Well, that’s just a little different from what I asked.

Did they undertake to amend the former final judgment of the antitrust suit?

Bruce Bromley:

Yes, sir.

The court below has now amended by adding a provision to it which orders us to dismiss with prejudice our suits before spring.

Felix Frankfurter:

Well, that followed —

Harold Burton:

(Voice Overlap) to say —

Felix Frankfurter:

— the amendment of the decree.

Bruce Bromley:

Yes, sir.

Felix Frankfurter:

If the amendment is correct, then that’s a correct controversy.

Bruce Bromley:

That’s right.

Felix Frankfurter:

All right.

Bruce Bromley:

Now, the National petitioned as a ground for this relief, asserts that the very bringing by United States Gypsum of these suits for infringement in recovery of compensation constitute a misuse of the patents under — under the Morton Salt case.

The National petitioned below contained an alternative claim.

It asked the modification of the decree below to bar us from suing on the ground that we had been guilty of patent misuse during the 1948-1951 period in question in eight different and specifically detailed respects.

In other words, it alleged that during that period, in spite of the injunctions against us, we had misused our patents and it specified power, according to the petition, it alleged we have.

In June 1953, the Government filed a petition below.

The Government did not adopt the position of National.

It took the position only that we have no right to declare upon the license agreements as a basis for our recovery because it said they had been declared to be illegal.

(Voice Overlap)

Bruce Bromley:

However, the Government’s position was, insofar as our other counts are concerned for quantum meruit and infringement, if you please, they took no position as to whether they were barred by the final decree or as to whether they should be barred, saying it’s a private dispute among private parties in which the Government has no interest.

In September 1953, USG filed its answers to those petitions below of National and Certain-teed and in our answers, we put an issue, every allegation of every fact that was alleged, and we alleged affirmative facts as of — additional facts as affirmative defenses.

In July 1954, one judge dissenting that a court below filed an opinion ruling that further prosecution of our suit should be enjoin.

Now, the District Court made that determination on that modification of the decree without hearing any evidence whatsoever.

And the decree was made in December 9, 1954, adding a paragraph specifically ordering us to dismiss our suits with prejudice.

Did you ask for a hearing?

Bruce Bromley:

We asked for a hearing time and again.

Yes, sir.

All we had was a trial by briefs on two days and a lot of argument.

Felix Frankfurter:

Could you take a minute to state what evidence on proffer — what kind of issue in the proffer (Inaudible)

Bruce Bromley:

No, we did not proffer any evidence specifically.

Our position was that we were there on a petition which alleged eight specific acts of misuse in detail.

We denied them in our answer, asserted affirmatively in our answer that we have not committed any one of the alleged acts.

And during the argument, I think it was conceded by Judge Rosenman that there were factual issues there, but the Court decided to take care of the matter by a decision, which I say was on the law that the bringing of the suits was misused.

We made a motion for a new trial in which we said, “Well, you haven’t disposed the claim too because you never heard us, and we ask now that you hear us.”

We really asked.

We asked now that Judge Rosenman to be compelled to go ahead and offer some proof.

All he’d done is made some allegations.

He hadn’t made any proof, so we asked that they go ahead and prove their case and that we give a chance to — to prove that we haven’t done those things or we had ever done and we purged it.

Felix Frankfurter:

But the bringing of the suit as an object in fact which — which we didn’t contest.

Bruce Bromley:

Couldn’t contest that.

Felix Frankfurter:

— take judicial order of that.

Bruce Bromley:

That’s right, sir.

Felix Frankfurter:

And what goal — rule as a matter of law that the bringing of the suit were to violate the decree?

Bruce Bromley:

Yes, sir.

Felix Frankfurter:

So that’s why the evidence would be irrelevant.

Bruce Bromley:

Oh, that’s right.

Felix Frankfurter:

So why — why didn’t you contest it?

Bruce Bromley:

We’ll need any evidence about that.

That was just wrong.

Felix Frankfurter:

Well, I mean that that’s — that’s one of the things in this — a basis of this modification, is it not?

Bruce Bromley:

Yes, sir.

And that’s the first question, I submit, is presented here.

William J. Brennan, Jr.:

Well, did it have any other basis — basis, Judge Bromley?

Bruce Bromley:

Well, I think it — I don’t think it did.

Bruce Bromley:

I think it asserted that some of the allegations of misuse had been proved although there hadn’t been.

There’s a — there’s a conflict, I think, and a little doubt as to what they did decide.

But I — my position is all they decided as a matter of law, the bringing of the suits was annulled.

Felix Frankfurter:

Did the Government take any position on that issue?

It did (Inaudible)

Bruce Bromley:

No, sir.

Felix Frankfurter:

Did the Government take any position on the legal bearing of bringing of the suits to your duty of obedience and including the names?

Bruce Bromley:

No, sir.

All it said was that its position was that the declaration of nullity barred our counts on the license agreements, but it didn’t take any position that our bringing of those claims barred us from asserting the infringement claims.

Felix Frankfurter:

Moreover, it doesn’t say the Government — that they don’t want to enter to the question of a quantum meruit controversy.

The implication of that is it didn’t regard the bringing of that suit in and out itself a violation of the decree.

Bruce Bromley:

That’s perfectly right, sir.

I think, perhaps, I should try to state as briefly as I can what I understand to be the basis of the decision below.

First, the Court notes that in our compensation suits, Counts I and II are bottom directly on the license agreements declared null and void.

And after making that observation, the court below concludes that the effect of the final decree, although it had no injunction in it whatsoever in this area, was to bar us from prosecuting Counts I and II of our pending claims.

But the District Court also concluded, and I quote it, “That the 1951 decree did not bar expressly nor impliedly the character of suits asserted for infringement or quantum meruit.”

Now, despite that latter conclusion that the final decree didn’t bar us from suing for an infringement or quantum meruit, the District Court nonetheless has modified the decree to bar the assertion of those claims and to order their dismissal with prejudice.

Now, just what is the misuse that the court below found in its decision?

Could I ask you a question?

Does the modification of the decree bar you — bar only the maintenance of suits for the pendente lite period or does it bar the maintenance of infringement suits beyond the pendente lite period?

Bruce Bromley:

Beyond the pendente lite period because there were two of these people who would use the patents after the final decree became effective without ever taking compulsory licensing and we were ordered to dismiss as to them.

Now, we’re in this posture here that’s moot because they have settled.

I thought — as I read the opinion, I thought he left that post — that post litigation period to the southern district and to the suits of the Court’s —

Bruce Bromley:

No, Mr. Justice.

— jurisdiction?

Bruce Bromley:

No, Mr. Justice.

He ordered the dismissal of those — those very suits, Ebsary and Newark in which we had claims for post-decree infringement and use of our patents.

But that’s not before us because they’re out.

Can you point where that is?

What I was referring to is on page 39 of the appendix, the District Court’s opinion.

You’re referring to the Newark and Ebsary defenses and the Court says, “We think trial of that issue, that is after 1951 before the complaint before the New York and the New Jersey District Court should not be interfered with here.”

Bruce Bromley:

Well, at page 1160, the provision of the judgment is quoted, and it orders dismissal of Newark and Ebsary completely.

That’s because they are settled.

Bruce Bromley:

Oh, no, no.

No?

Bruce Bromley:

No, no, that was entered long before they are settled.

Well, go ahead.

Bruce Bromley:

Oh, that opinion was corrected later on our motion for new trial in that respect.

Oh, I read the wrong opinion.

Bruce Bromley:

Wrong opinion.

Yes, sir.

Now, assuming that the Court had jurisdiction to do what it did, a point which we deny and which we argue fully in our brief and which we do not and cannot waive, I submit that this appeal raises two noble questions.

First, I submit that this Court must decide whether it was error to hold, as the court did below, that prosecution by us of our compensation suits pleading counts on the voided license agreements is, as a matter of law, misuse of the patents.

If that — if that question be decided in our favor, then there — the Court will reach a second substantial question which is whether it was error to hold, as the court did below, that the issues of patent misuse other than the bringing of our suits in the 1948-1951 period raised in the petitions below and denied by the answers below might be adjudicated without the taking of any evidence.

We recognized that if this second question is decided in our favor then at last we would reach those issues which have excited the Government, and those issues which interest the Government are two.

First, they are interested in a declaration of what forum is more appropriate for litigating the facts of alleged misuse and purge, the antitrust court below or the courts in which the compensation suits are pending.

And secondly, they are interested in having this Court now declare what factual and legal criteria should be applied in determining misuse and purge, a request, which we submit, is entirely premature.

Now, I turn to the first substantial question.

Was the pleading of our counts on these voided license agreements a per se misuse by us of our patents?

We submit that it was not.

First, we say that it can never be a misuse of patents for a party to seek interpretation of an equity decree that purports to regulate those patent rights.

This is most certainly true, I submit, in the case of any decree containing a term as this did upon which reasonable men might differ as to its meaning.

That is a flat declaration of nullity unaccompanied by any injunction.

Appellees National and Certain-teed urged below and still urge that the illegal null and void language of Article IV bars our recovery on any theory of law for compensation pendente lite for the use of our patents.

The United States, both in the court below and in this Court, has suggested still another meaning of this declaration of nullity.

They merely say if I said that it prescribes recovery on our counts on the agreements but is entirely neutral as to whether we should be barred from suing for infringement or quantum meruit.

Now, implicit in that governmental position, I submit, is a recognition that on this record, the public interest does not require that we’d be barred from recovering compensation for the use of our patents on theories either of quantum meruit or infringement.

The decision of the court below falls somewhere in between those two.

Thus, they found expressly that the declaration of nullity did not bar our counts for infringement or for quantum meruit but they reached the results of bar by charging us with a continuing misuse for having failed to guess what the Court only later discovered that the illegal null and void language was intended to restrain us from even declaring on the no license agreements, that is if they were not separable but were totally destroyed.

Now, when — when we had the draft of the complaints in the 1953 compensation suits, we sincerely believe that the effect of Article IV was only to prescribe future performance or enforcement of the patent royalty terms of the old agreements, and the court below has recognized that that’s been our position for years.

Bruce Bromley:

I submit that the record below, and I think it must be examined, provides a solid basis for entertainment by us in 1953 of our belief that Article IV merely canceled the agreements as of the date of the entry of the final decree and did not bar suits under them for royalties in the pre-1951 period.

Felix Frankfurter:

Pardon me.

I don’t want to take you out of your enforcement.

I know it has well been charted, but all you’ve said now, these are (Inaudible) of the question, all you — the whole argument up to this point concerns the construction of a provision of the decree, is that right?

Bruce Bromley:

Yes, sir.

Felix Frankfurter:

And that, to me, is rather impliedly persuasive to place against such a construction is from the Court to render the decree.

Bruce Bromley:

Well, that’s a — that’s a — a difficult proposition to answer, but —

Felix Frankfurter:

We’re not — because it comes up later, it becomes along on the question of what is a proper form —

Bruce Bromley:

Yes.

Felix Frankfurter:

— in a controversy.

Bruce Bromley:

It does.

Perhaps, I can just briefly say this.

Felix Frankfurter:

I — I understood you.

I just want to tell you what the impression of your own argument that’s on my mind, I have to say.

Bruce Bromley:

Well, I’ll come to that later.

Felix Frankfurter:

Very well.

I can see that you oppose to that.

You say there are (Inaudible) and I think you can perform possibility with what meaning (Inaudible)

Bruce Bromley:

Yes, that’s right.

Felix Frankfurter:

I hope you have sometime or just for a minute anyway.

Bruce Bromley:

Now, I want to demonstrate before I come to that that we had a solid basis when we drew these complaints for believing that all the decree did that — that the decree did not bar suits for pendente lite royalties.

And I have to go through this demonstration because these decrees were molded carefully below and have a long history.

Following its grant from the bench in 1948 of summary judgment in favor of the Government, the — the court below requested that all of us submit drafts.

In November 1948, the Government had entered the draft.

Nowhere in that government draft was it suggested that the license agreements were to be declared unenforceable in toto.

Indeed, it only — that decree only contemplated a cancellation and the bar of future performance under the licenses.

Indeed, under the Government’s proposal, the licenses were to have continuing vitality for as much as 60 days after entry of the final judgment.

Thereafter, USG submitted a draft.

Our draft only provided for cancellation and termination of license agreements upon entry of the final decree.

Now, those drafts of the United States and USG were the only drafts before the court below when it sat on June 13, 1949 to hear argument on the form of the decree.

Bruce Bromley:

In the course of that argument, several significant things happened.

On June 14, Mr. Dallstream of Chicago for Celotex and Certain-teed and Mr. Knuff, counsel for the Government submitted amendment to the proposed draft decrees.

Those amendments declared the agreements illegal, null and void.

Mr. Finck for National in that argument also urged in oral argument that the license agreements be declared null and void.

And on June — July 16, 1949, he submitted a proposed decree of his own, which, while declaring the agreements null and void, merely ordered them canceled and forbad for the performance of them after final decree.

Thus, the three sources from which the court below could possibly have derived the null and void language of the final decree are provided by the decrees and amendments submitted by the Government, National and USG.

It only remains to be determined, therefore, whether any of those parties in proposing this null and void language represented to the Court what the effect of it was intended to be upon suits for pendente lite royalties.

And the fact is that each of those parties either informed the court below that inclusion of this language was to be deemed equivalent to simple cancellation or that the suggestion — that the Court declared the agreements null and void was not in any sense based upon a desire to avoid pendente lite license fees.

Mr. Dallstream, for instance, in arguing on this date to the court below had this to say, “In order that United States Gypsum will have no misunderstanding in my position, I want them to know that my suggestion is in no sense based on any hope or desire on my part to get out of any license fees during the interim period.”

And the Government, with respect —

Earl Warren:

Who said that — who said that, Judge —

Bruce Bromley:

Counsel for Certain-teed, sir, but he was speaking for Certain-teed.

He was counsel for Celotex, speaking for Celotex and Certain-teed upon that occasion.

And the Government had this to say about the effect of the illegal, null and void language.

This is Mr. Knuff with the Department of Justice, “On the other hand, when you were declaring them null and void, null and void could probably be considered as a synonym for cancellation.”

And Judge Jackson said, “That would then be the date of the decree, would it, the date of filing?”

And government counsel said, “That’s right.”

The Government has never repudiated its statement, thus made on June 14, 1949 that null and void could probably be considered as a synonym for cancellation in this decree.

In his argument on that date, Mr. Finck, for National, acknowledged that the proposal of the Government merely canceled the license agreements restraining future performance.

And he expressly acknowledged that the proposed decrees of both the Government and USG, unlike the decree entered in the Line Material case, did not contain any injunction against suits for past infringement or breach of royalty contracts.

Then National, a month later on July 16, submitted to the court below its draft of proposed decree.

That draft merely modified the Government proposal to include the declaration that the license agreements would be deemed null and void.

I should like to read the words of this National proposal on July 16, 1949 because I think it is a great significance.

It appears at the record on page 432 and is entitled, in the middle of the page, Article VII and its Nationals amendment to the government proposal in this area.

It’s in Volume I of the record, page 432 and its headed Article VII, that each and all of the patent license agreements and other arrangements relating to board and so forth are hereby declared to be null and void and are hereby canceled.

Each defendant company is hereby enjoined and restrained from further performance of any such agreement and so on.

That was not adopted?

Bruce Bromley:

That was not adopted.

The only thing the Court adopted was the declaration that it was illegal, null and void without any injunctions.

I’m only referring the Court to this as a matter of aiding in the interpretation of what the Court meant when it used illegal, null and void.

Bruce Bromley:

Now, counsel for National have given to the Court an imposing looking document entitled “Development of Final Decree”, and it’s this document that I hold in my hand.

It purports to show the positions of the parties with the respect to the nullification provisions of the 1951 final decree, but it omits entirely any reference to the July 16, 1949 proposal of National.

And it seeks to create the impression, I fear, that the National position in 1949 is entirely consistent with the position that on — that National now adopts before this Court, and that just is not so.

As we’ve seen the null and void language proffered in the National July 16 draft, served no other purpose than justification for cancellation and restraint of future performance.

This document by reason of that omission, I’d submit, becomes useless because it’s incomplete, and to that extent, it is misleading and either should be taken back and correct it or destroy it.

Furthermore, the corporate appellees have considered or have conceded that by July 25, 1949 in the course of these hearings on the decree before the lower court that USG had began to suspect that the corporate appellees’ purposes in pressing for inclusion of this null and void language in the face of the cancellation proposals was to obtain for themselves some advantage with respect to their use of USG patents, and USG called its suspicions to the attention of the lower court.

Corporate appellees, however, never affirmed or denied to the Court the correctness of our suspicions.

They merely continued to stand upon the reasons they previously given for including illegal, null and void, which reasons, of course, did not include any suggestion that the intent of the language was to avoid payment for their use of our patents.

It is submitted, therefore, that all proponents of the null and void language in the court below that finally appeared in the final judgment, either expressly or by strong implication informed both the District Court and USG that inclusion of that language was not intended as a bar to collection by us of compensation from persons who had used our patents pendente lite.

Now, it’s against this background that we, lawyers, when we came to draft the complaint for compensation saw fit to make it in six counts, the first two of which declared upon the voided license agreements, either directly or as amended according to our allegations.

Now, I submit that not —

William O. Douglas:

Where is the decree of 1951?

Is that printed in the record?

Bruce Bromley:

Well, it’s in our appendix of the appellant’s brief.

1159.

Bruce Bromley:

It’s 1152 in the record —

562 of the record.

Bruce Bromley:

562 of the record, is that right?

562 of the record, Volume I.

(Voice Overlap)

Bruce Bromley:

Yes, sir.

Are not to have pleaded counts on these voided license agreements would have been full argued from the standpoint of counsel.

We had to state a claim that would have covered any situation reasonably to be expected to arise upon the trial.

Clearly, if it could be established upon the trial that the license agreements have been abandoned and repudiated for the parties following the first decision by this Court or had been voided by that decision, then of course subsequent use of the patents would have laid the users open to claims of infringement or quantum meruit.

On the other hand, if we were to confine the assertion of our claims to infringement or quantum meruit and one of these defendants were to defend by claiming the right to use the patent under the old voided license agreement, we’d be confronted with the court below concluding that there was an unasserted claim under the contract for all or a part of the pertinent period which would defeat recovery on quantum meruit or infringement.

And indeed, the eighth defense to Count V in our suit in Iowa, the infringement count by National, actually raises this defense that they’re not liable for infringement because they had a license agreement.

Therefore, their use of the patents was not unauthorized but authorized in spite of the fact that the Court had saw — seem fit to declare that agreement illegally.

Now, although you may recognize the validity of this dilemma, you may well ask me why in the world did you ever plea this in the form of separate counts.

Well, if I had it to do over again in the light of the education, which I have subsequently received, I might plead it now differently in form at least.

I might abide by the spirit of the new rules and just make a narrative statement of what’s happened to this, giving a history of the facts in the gypsum industry since 1940, the government suit, the appeals, the decree and the use by the defendants of the patents leaving the theory of legal relief to the Court.

Bruce Bromley:

Now, that — to plead that way might eliminate any possibility of a court, I submit, stumbling into this continuing misuse of patents theory by virtue of the words we used when we declared on the voided license agreement.

But it wouldn’t, of course, may clear the Court what our legal theories were in the pleading and neither would it have eliminated a single issue that is not already a part of a trial and whatever form the complaint takes of a compensation suit.

In any such trial, it would still be necessary just as it was below for the Court to decide whether and on what theories, if any, compensation to USG was barred by the illegal null and void language of the decree and the Court would have to look to the parties and the history in order to determine that question.

Now, furthermore, it is clear from Conclusion 7 and 13 of the court below, which appear at record 1156, Conclusion 7 and 13, that if, in 1953, we had not pleaded counts on the old license agreements, the 1951 decree would not have barred compensation suits based on the other counts.

That’s the second paragraph of Conclusion 7.

If we had not pleaded those counts, then the Court, as it did, would hold that the other counts were not barred by the decree.

I further think it’s clear that if we hadn’t pleaded those counts, we’d not been deemed to have misused our patents from 1948 to 1953, 1156, Conclusion 7 and 13.

And finally, if we hadn’t pleaded those counts, I think it’s clear from those conclusions the Court wouldn’t have modified the final decree, but we —

Felix Frankfurter:

(Inaudible)

All right, go on.

Bruce Bromley:

Strange but sound.

Felix Frankfurter:

What?

I’m not (Inaudible) your argument.

I’m (Inaudible) if that was in the mind of the Court that to set up due course of action and what is bad that — that appreciates what otherwise might be good.

That’s what you are saying.

Bruce Bromley:

Exactly, sir.

It’s exactly what they did.

But we already know what would have happened in 1953 if, in it’s — in our compensation suits, we’d merely pleaded infringement or quantum meruit, the old license agreements would have been pleaded in defense just as they now have been.

The issue of the validity of those agreements would have been raised for decision, and it would have been a question had we so limited our pleading in the face of those agreements whether we were entitled a relief for infringement.

However, one serious difference would have arisen if the Court had determined that the only — the old license agreements were only canceled and that the bar was only a future bar, then we’d be out of court because we couldn’t turn and sue on the license agreements because the statute of limitations by 1953 had started to run against the 1948-1951 period.

And also, if we had filed such an incomplete pleading, the doctrine of res judicata on the theory that we had an opportunity to plead it, might very well have barred us if we turned around and started later to declare in another fashion.

Now, I submit it’s just — to avoid just such hazards of good faith prosecution of a claim that the federal rules permit a party to plead alternative claims and inconsistent to counts — accounts and declare that the insufficiency of one or more doesn’t render the whole pleading defective.

I come to the second substantial question having established my own satisfaction at least that the Court was wrong in holding that the filing of our suits on the Counts I and II was a per se misuse of our patents.

Now, was it error to hold as the Court did that it could resolve this second question without the taking of any evidence?

And the second question was without regard to filing the suits now, we had otherwise misused our patents in the 1948-1951 period.

And this petition of National, I emphasize again, it was a very detailed allegation, just exactly what it — we were alleged to have done by way of additional misuse during this pendente lite period.

Our answers were very specific denials that we haven’t done any such thing.

Those pleadings then plus the record of the old government suit below constitute the complete record upon which the court below entered its judgment of modification.

Remember, if you will please, that the last word in the old record before the court below dealt with the economic and technological state of the gypsum industry no later than 1941 and that the period in question for which we are charged with having been guilty of misuse was 1948 to 1951.

Now, the corporate appellees apparently sensing that those deficiencies in the record undercut the basis of the judgment below in this area asked this Court to resort to illegal fiction and to presume that the conspiracy established below up to 1941 continued to 1951.

Bruce Bromley:

But even assuming the accuracy and application to this case of such a legal theory and even — even assuming its necessary corollary that the burden of going forward was upon us to rebut that presumption by showing purge, the stubborn fact remains that we are never given the opportunity to go ahead and prove it.

We ask now that you’ll give us the chance first to go back and be met by proof from the accusers as to what it is they say we had done, and second, to rebut that proof by showing if we didn’t do it or if we did it at any time, we purged ourselves of it.

Now, unfortunately, the argument below, because it was an argument, got off into the area of purge.

And we call the attention of the court below to certain facts which we said are already of record before it, which we said might very well, as a matter of law, establish purge.

And thus, for illustrative purposes only, we called the Court’s attention to the fact that the court below in the antitrust suit had made a finding that USG had discontinued its price fixing in 1941.

But we said that — that discontinue and so long prior to the period of 1948 to 1951 in question, maybe enough as a matter of law to establish purge and dissipation of unlawful effects.

We also called the attention to the court below that the 1948 opinion of this Court established prima facie, the illegality of our price fixing practices.

We also said — we also said to the court below, the record before you shows that in 1949, during the discussion of the 1949 decree, we proffered legally unobjectionable licenses to all of these people, and they wouldn’t take them.

We also call the Court’s attention to the fact that the lower court had issued an injunction against us in 1949 and that this Court had entered a temporary injunction against us in May of 1950.

And we urged to the court below in the course of our argument that if there was any presumption to be applied, it was a presumption of obedience to these many pronouncements of the Court.

And that there was no sense in saying the presumption was we’d gone ahead and continued in the phase of those declarations to violate the law.

But even if those circumstances do not rebut, the presumption, if there is one, it still remains that we should have been allowed to go forward to prove facts of purge extrinsic of the old record and occurring either in the 1948-1951 period or subsequent thereto, and we shouldn’t have been pilloried on a trial by briefs.

In connection with this deprivation of our right to be heard or to cross-examine, I’d like to call your attention to one striking illustration.

The court below in paragraph (a) of Finding 22, again record 1150, makes a finding to which all appellees, including the Government, now make a proving reference.

There, the court below was trying to get around an unchallenged finding made in the old government antitrust proceeding that USG had stopped fixing prices in 1941, to which I alluded a moment ago.

And in that Finding 22, paragraph (a), the court below says that the fact that USG had not fixed prices for more than 13 years is dissipated by the consideration that the notices that we sent out in 1941, that minimum price bulletins would be suspended including this — included the statement that such suspension would continue.

Now, I quote from the finding, from — from — read a quotation, which is quoted in the finding, “Until we decide again to exercise our right to do so.”

The Court says, that quotation from a USG document is a reservation of right, which dissipates our contention that abandonment of price fixing accomplished purge.

Now, where did the — where did that quotation come from?

It came from a reply brief filed by the opposition.

Nowhere in the record is there any document that includes that quotation.

It comes out of a footnote in which they say, “We sent a letter in 1941 which — which contained this reservation the right.”

Now, we might have repudiated it.

It may never have been sent.

It may have been changed.

We may not be able to explain it if we said it.

There are thousands speculations about it.

We were never given an opportunity to present them, and we were confronted with the finding and the determination based on this kind of evidence.

Felix Frankfurter:

I thought — I’m little in a doubt.

You said it came out of a brief from the other side and then you said about a footnote (Inaudible)

Felix Frankfurter:

You lost me at that point.

That is (Voice Overlap) —

Bruce Bromley:

A reference in the brief —

Felix Frankfurter:

— in the footnote to the brief, there was a quotation of one of your documents?

Bruce Bromley:

Yes, sir, I — above —

Felix Frankfurter:

Why doesn’t that make any less of a document?

Bruce Bromley:

Well, the document was never offered or received in evidence.

It was never in the record.

Is this referred to in the old opinion, the first opinion?

Bruce Bromley:

Yes, sir.

There was a finding that we seized fixing prices in 1941 but this letter to which they now refer was not in the old record and no finding of us.

They’re not in any record of any case.

They just say we sent a letter in connection with our discontinuous of price fixing in which we said that suspension would continue, “until we decide again to exercise —

Felix Frankfurter:

Is the — is that — is the full document of which that is the part anywhere in the record now before us?

Bruce Bromley:

No, sir.

It’s my point —

Felix Frankfurter:

You quoted it full in the appellee?

Bruce Bromley:

No, sir, just this clause.

Hugo L. Black:

(Inaudible)

That’s referred to in the opinion, the first opinion of this Court?

Bruce Bromley:

No, sir.

No, no, not referred to by you at all.

Hugo L. Black:

How did the judge have to use it if it was in the record?

Would you know?

Bruce Bromley:

They just used — they just used it because it was in the brief.

The only thing these judges had served before them were briefs and arguments.

We never had testimony or exhibits or hearing.

Judge Rosenman and I and others talked for two days.

Now, that is an illustration of the vice of not requiring an orderly presentation of evidence with the right of cross-examination and rebuttal.

William J. Brennan, Jr.:

(Inaudible) these letters identified (Inaudible)

Bruce Bromley:

Is it —

Hugo L. Black:

(Inaudible) identified.

Bruce Bromley:

Yes, it was identified, yes.

William J. Brennan, Jr.:

And this is all an expert?

Bruce Bromley:

Yes, sir.

Now, I say again with the issue presented thus specifically by pleadings.

Was there any evidence of the alleged 1948-1951 misuse, barring of course the contention that our very pleading of Counts I and II was such misuse?

There is none.

National and Certain-teed never met the burden.

They saw fit to raise themselves by the pleadings.

And certainly, we cannot be made to assume the burden of proving purge of alleged but unproven misuse.

May I reserve, sir?

Earl Warren:

You may, Judge.

Judge Rosenman.

Samuel I. Rosenman:

If the Court please.

Before today, this case involving this complicated gypsum industry has been before this Court five times.

Twice, Your Honors have written lengthy opinions discussing the evidence which was proven by the Government below.

Three times, you have either denied reargument or you have issued interim injunctions against U.S. Gypsum.

And in each of those five times, Your Honors have founded your action upon a finding that the misuse in this case by USG was of a most perversive and pervasive character.

The misuse in this case involved the use of identical patents licenses — identical patent licenses, which, starting in 1925, U.S. Gypsum used, as this Court has said, to organize an entire industry to fix prices, to limit production, to regiment the industry, and to stabilize prices throughout it.

That was the misuse, Your Honors, which forms the basis of what the court below did in this case.

It was not the misuse of bringing this cause of action, as Judge Bromley would have you believe.

That was one of the grounds to answer Mr. Justice Brennan on which the court below founded its modification of the decree, but it was only one and there were four others which I proposed to take up with Your Honors in the course of my argument.

But underlying it all was what Your Honors found in two lengthy opinions about what USG had done to this industry.

So that it must come as a shock to Your Honors to learn that after these eight years and after five occasions of passing on this and after two lengthy opinions in which Your Honors condemned what had happened in this industry and in which Your Honors approved of finding below that these license agreements were illegal, null and void and that these patents had been misused pervasively through the industry.

I repeat, it must come as a shock to learn that in spite of that, USG in the District Court of Iowa, in the District Court of New Jersey and in the Southern District of New York has commenced actions for royalties based upon those very agreements which Your Honors have held to be illegal, null and void.

And two of the counts are expressly braced — based on it.

The other three accounts, as we shall show, are means of circumventing the finding of the illegality, null and void and substituting for them, causes of action, one of which the court below referred to as a left-handed way of getting royalties by changing the form of action without changing the substance of the allegation.

Now, Judge Bromley has neglected in his argument to discuss something which is raised in his brief and discussed at great length in the brief here and in the brief below, namely, the question of jurisdiction of this District Court to do what it did.

I cannot assume that that means that Judge Bromley has abandoned that point.

Samuel I. Rosenman:

And therefore, I would like to take a few minutes to sustain the jurisdiction of what the court below did.

His — the jurisdiction of the three-judge court below, when we filed our petition, was challenged and USG took the position that the District Court, in 1953, when we filed our petitions, had no jurisdiction to consider these matters at all that the Court should leave it, that the court below should have left it to the various district courts throughout the United States to pass upon the questions raised by us in the petition and which were also raised as defenses in Iowa and in New Jersey and in New York.

On that question of jurisdiction, the Government of the United States also filed a petition below urging the District Court below to take some action with respect to the petition.

It took the position there, and it takes the position here very clearly in what has been filed with Your Honors that the court below had jurisdiction.

As Mr. Justice Frankfurter said, “Isn’t it the Court most probable to have jurisdiction?

It was its decree.”

We were asking this Court to construe the decree.

We were asking the Court to enforce the decree, and we were asking the Court to modify the decree, so which court would have better jurisdiction or more probable jurisdiction than the District Court whose decree it was?

Harold Burton:

Had the District Court retained jurisdiction for any enforcement under the decree of any —

Samuel I. Rosenman:

Yes, sir.

That is the first point that we raised in our jurisdictional question.

Article X of the decree, Your Honor, which is set forth at record 571, could not be clearer in terms nor could it be clearer in intendment.

That final decree says that jurisdiction of this cause and of the parties hereto is retained by the Court for the purpose of enabling any of the parties to this decree.

To apply to this Court at any time for such orders, modifications, vacations or directions as maybe necessary or appropriate, one, for the construction or carrying out of this decree, which is what we asked for, and two, for the enforcement of compliance therewith which is what we asked for.

In addition to this specific retention of jurisdiction, we rely upon the fact that any court of equity has inherent within it the power to do what this Court did.

What did it do?

The first thing it did was to say that by reason of Count I and II, by reason of the fact that Count I and II applies directly in the phase of this decree, we will bar them.

Now, that was a simple statement by the Court that we’re going to protect our own decree from having it nullified out in Iowa.

The second thing it did was to modify the decree, which is what we asked for.

It modified the decree, not only relying upon Article X but relying upon its inherent power to do so.

It did it in order to effectuate what it considered to be the basic purpose of the decree.

And here, I’m discussing Your Honors only the power of the court below.

I hope to have the opportunity of discussing the merits of what the Court did in some greater detail.

William J. Brennan, Jr.:

(Inaudible) conflict with the original decree and not as Judge Bromley has suggested —

Samuel I. Rosenman:

I say that it —

William O. Douglas:

— misuse of the patents?

Samuel I. Rosenman:

I and II was founded completely on the fact that it applies directly in the phase of the declaration of illegality of the license agreements and therefore are barred ipso facto.

The Government took the same position, and I’m sure that USG must recognize the same position.

Now, I’m not talking about the point of misuse by bringing the counts.

The court below went further and said that bringing those counts does constitute what we call a fresh misuse which occurred in 1953.

Samuel I. Rosenman:

That is one of the grounds, but only one on which the Court based its modification.

The more important misuse and the one which I shall try to expound to Your Honors and the one which we say the decree and the conclusions by a very reading of them will show actuated and activated the court below to do what it did was not this fresh misuse.

But the misuse which Your Honors had twice found pervaded this entire industry and had been used by in the way of identical patent licenses by USG to regiment, organize the industry and restrain production.

The fresh misuse was only an additional ground.

Felix Frankfurter:

Judge Rosenman, since the Government isn’t here except by a decree, would you tell me if I am right in reading its position before the court below as — as maintaining the — the cause of action, insofar as the (Inaudible) and the license agreement is illegal and it’s — and as such for violation of the decree.

That’s the scope and the principle and the only scope of the Government, isn’t it?

Samuel I. Rosenman:

That’s all they did — did below, Your Honor.

We think that it went further in this Court.

Felix Frankfurter:

Well, here, if you’re asking for some —

Samuel I. Rosenman:

Here, it’s asking —

Felix Frankfurter:

(Voice Overlap) —

Samuel I. Rosenman:

— for a great deal more —

Felix Frankfurter:

— would it?

Samuel I. Rosenman:

— but in the court below, Your Honor is perfectly right that it merely took the position that with respect to Counts I and II, we agree with the National that they fly in the face of the illegality declaration.

And therefore, as the Government, we want to protect our decree to that extent.

Now, there was another ground on which the court below took jurisdiction which is very important in considering our petition there, and I should interrupt to say that I speak here only for National Gypsum, one of the defendants.

Mr. Miller is here representing Certain-teed, another defendant.

In the court below, there were two other defendants who were more interested in the fresh purge doctrine than we are because we took a license as soon as the final decree was signed, so that we are not being sued for royalties which occurred after 1951.

The other two parties who are now out of the litigation did not take a license in 1951, and they continued to use the patents until USG started the suits in Newark and in New York.

And therefore, they had to rely more on the fresh abuse doctrine because the court below said that the fresh abuse doctrine of having brought to suit in 1953 protects these other two defendants right up to 1953 because it was a fresh misuse of the patents.

We paid our royalties and have paid our royalties since the entry of the final decree, so that with — we are particularly interested in showing, as we have and as I shall demonstrate, that up to the final decree of 1951, this misuse on the part of USG continue the unpurged, the old unpurged misuse continued.

And therefore, we are absolved from paying anything, not only absolved but forbidden to pay anything up to the entry of the decree.

How did the rate of royalty under the present license agreements, the post-decree license agreements compare with the rate of royalty that would have been chargeable under the illegal agreements?

Samuel I. Rosenman:

The decree of the Court said that a reasonable royalty should be faced and that if we could not agree on the reasonable royalty, we should come back to the Court.

The parties did agree upon a reasonable royalty which was the same as the royalty before with this exception.

One, one of the misuse items and one of the things which the Court, this Court found to be a violation of the Antitrust Clause was that the 1% royalty used to be fixed on patented and unpatented board, gypsum board.

This decree said, “You can’t fix royalties anymore on unpatented board.

That’s a repression of production, and we won’t let you do that anymore.”

So that while the rate of royalty was the same, the amount of royalty necessarily had to differ it.

I was coming to the additional ground for jurisdiction below which is very important in considering our petition.

Samuel I. Rosenman:

Four — four actions had been started in three different jurisdictions.

In addition to that, two claims had been made upon other gypsum companies intimating that suit was going to be brought in two other jurisdictions, so that there would have been five jurisdictions normally to be expected which would be hearing these claims.

So what the court did below was to take jurisdiction itself on our petition to hear as the original trial court, the questions which we raised in our petition and which we had raised denial, namely, that there was a misuse of these patents starting way back in 1929.

Earl Warren:

We’ll recess now.