United States v. Glaxo Group Ltd.

PETITIONER:United States
RESPONDENT:Glaxo Group Ltd.
LOCATION:Wisconsin Eastern U.S. District Courthouse

DOCKET NO.: 71-666
DECIDED BY: Burger Court (1972-1975)
LOWER COURT:

CITATION: 410 US 52 (1973)
ARGUED: Nov 09, 1972
DECIDED: Jan 22, 1973

ADVOCATES:
Daniel M. Friedman – for appellant
Henry P. Sailer – for appellee Glaxo Group, Limited
Sigmund Timberg – for appellee Imperial Chemical Industries, Limited

Facts of the case

Question

Audio Transcription for Oral Argument – November 09, 1972 in United States v. Glaxo Group Ltd.

Warren E. Burger:

We will hear arguments next in 71-666, United States against Glaxo Group.

Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

Well, this is a Government civil antitrust case, here on direct appeal to the United States District Court for the District of Columbia, which presents two basically unrelated issues.

The first issue is whether in a civil antitrust case, the Government may challenge validity of patents which although not relied upon by the defendants as a defense to the antitrust charge and nevertheless involved in the antitrust violations case.

And the second issue is whether the relief given by the District Court in this case was inadequate.

The appellees, the Glaxo Group Ltd. and Imperial Chemical Industries Inc, which I should refer to as ICI, are two British drug firms.

The drug involved in this case is an antibiotic called Griseofulvin.

Griseofulvin itself is an old product and is unpatented and for many years was used as fungicide in the treatment of fungus infection of plants.

In the 1950s, ICI discovered that if Griseofulvin was taken internally, it would be able to cure various fungus infections such as ringworms on the skin of people and animals.

And as a result of these discoveries, in 1959, ICI obtained a patent upon this new use of the drug.

The patent contained two basic claims.

The first was a so-called method claim which consisted of a method of curing external fungus infections of animals and people by the administration of what they describe as an effective amount of Griseofulvin.

The second claim was a so-called product claim.

It was described as pill, a capsule or a container containing an effective amount of Griseofulvin which would accomplish this objective.

And this is the basic patent, these two claims which the government is here challenging.

In 1967, the other appellee Glaxo obtained a United States patent on an improved form of Griseofulvin, the so-called micro size form of the drug, which is very much ground up in very small particles which is proven to be much more effective than the original form, which is the one now of principal commercial significance.

Between 1957 and 1960, the two appellees had extensive discussions, looking to a pooling of their patents and cross-licensing, and in 1960, they reach such an agreement under which the patents on Griseofulvin of the two companies were pooled and they cross-licensed each other.

And in addition to that, in this agreement, ICI agreed that it would use its best endeavors to make sure that its licensees did not sell Griseofulvin in bulk to third persons without the consent of Glaxo.

In 1962, ICI appointed the American Home Products Corporation, an American firm as its exclusive distributor of Griseofulvin.

It previously had appointed this firm as its exclusive distributor for other drugs.

And in its license to American Home Products, it required an agreement that American Home Products in turn would not sell this drug in bulk to any third persons without the written permission of ICI.

Shortly before this, Glaxo had granted similar, made a similar agreement with two other American firms, Schering Corporation and Johnson & Johnson, appointing them as distributors for the drug Griseofulvin in the United States and the agreements of Glaxo with these two licensees similarly provide that the licensees could not sell in bulk without the written approval of the licensor.

Each of these agreements gave the people cross-licenses under the patents.

That is Glaxo license under its own and ICI’s patents, ICI license under its and the Glaxo patent, and each of these was in form, the form of a patent licensing agreement.

That is they — in addition to the bulk sales restriction, the basic agreement was they licensed them to manufacture and sell under the patents and each of the licensees was required to pay a royalty to the licensor based upon the total amount of the Griseofulvin which they purchased from the English firms and sold.

Now, although the license has permitted the American firms to manufacture, the fact is that throughout this entire period, all three of the American licensees purchased all of their Griseofulvin from the English firms.

During this entire period, neither Glaxo nor ICI made any bulk sales to anyone, other than the three licensees and the three licensees themselves made no bulk sales at all to anyone in the United States.

Shortly before this suit was filed when the appellees were informed that the Justice Department was investigating the legality of these bulk sales restrictions, they canceled them.

Since that time, American Home Products Corporation has made a few sales of the Griseofulvin, not in bulk, but in the capsule form.

Daniel M. Friedman:

Now when this government suit was filed in March 1968, the three licensees together had a 100% of the market and at the time the record was closed a couple of years later they had 98.5% of the market.

The government suit alleged that the bulk sales limitations contained in the licenses and also in the ICI, Glaxo patent pooling arrangement violated Section 1 of the Sherman Act.

The Government complaint also challenged the ICI patent on two grounds.

We contended that the method patent was invalid, because it did not disclose how to practice the invention, since it’s nowhere stated what was an effective amount of Griseofulvin, and of course, the patent, the idea that was patented was the administration of an effective amount necessary to cure these diseases.

As we said, all that it said was an effective amount and that didn’t sufficiently disclose the method of practice in the invention so that when the patent ultimately expires, this patented information will be available to the public.

Byron R. White:

Now, this was in the complaint?

Daniel M. Friedman:

This was in the complaint, Mr. Justice.

Byron R. White:

And why in the complaint did the government challenged the validity of the patent?

Daniel M. Friedman:

Well, we didn’t spell out in the compliant but we said that these patents were invalid and the —

Byron R. White:

This was perhaps an anticipation that they are relying on the patent to justify the restriction or what?

Daniel M. Friedman:

No they have not relied on the patent.

No, our basic theory Mr. Justice White is that we have the right in an antitrust case where we allege and claim that the patents were involved in the violation, we have the right as an incident to that antitrust suit to challenge the violation.

Of course, here our allegation is that these bulk sales agreements restrictions were invalid and these of course will brought the patent licensing agreements.

Now we also challenged the so-called product claim on the ground that all this was, was a new use of the well-known product and if you couldn’t get a product claim on that that could only be patented under the method claim.

Though it is not in this case a trial in the traditional sense, the case was decided on various motions for partial summary judgment.

However, an extensive record was produced, it occupies 400 pages in this Court and extensive facts were developed through affidavits, through depositions, through stipulations, through various documents.

The District Court held that the ban upon the sales of bulk of the Griseofulvin and both the patent licensing agreements and the cross-licensing agreements was per se violation of section one of the Sherman Act, because under this Court’s decision in the Schwinn case in 388 U.S.

It was an impermissible restraint by the manufacture upon alienation.

That is the manufacturer (Inaudible) or is tighten and control over the property when he sold it to the American licensees and he could not thereafter control the disposition made by the American licensees.

The District Court however, struck from the complaint the allegations with respect to the invalidity of the patents.

The court said that the government had no standing to litigate this issue and there were two grounds of its decision — it’s really one ground.

What it said was as it interpreted the prior decisions of this Court, the government may challenge the validity of a patent only in two circumstances.

One, where it is alleged the patent has been obtained by fraud on the Patent Office.

There was no such claim here.

Two, where the defendants rely upon the patent as a defense to the antitrust case, and since the defendants here, the expressed it, one of the ICI had disavowed the reliance on the patent is concluded that the government had no standing and consistent with that decision, it also denied the government’s motion to file an amended complaint, which among, other things, would have also challenged the validity of the later Glaxo patent.

The judgment the District Court entered in this case prohibits the appellees from participating, adhering, enforcing it anyway, agreement prohibiting or limiting the resale in bulk of not only Griseofulvin but of all drugs that it sells in the United States.

The District Court however refused to grant two other provisions which the government asserted was essential to dissipate the effects of this illegal conduct.

That is, we said in addition to that the Court should order the appellees themselves to grant licenses in bulk as long as they sell in the United States on reasonable, nondiscriminatory terms and in addition we urge that they should be required to grant licenses under their patents at reasonable royalties.

And I will discus the facts relating to the need for this relief when I come to discus the relief portions of the case.

Now, under this Court’s decision in the Gypsum case, there is no question that if the defendants rely upon a patent as a defense to a antitrust case involving patents, the government then has standing to challenge the patents.

Daniel M. Friedman:

In the Gypsum case, what happened was the government alleged that an industry wide price-fixing system resulting from the series of patent licenses violated the Sherman Act.

The defendants in that case admitted that if their patents didn’t provide a defense, their conduct was illegal.

But they asserted the patents did provide a defense.

At that point, the government then moved to amend the complaint to challenge the validity of the patents.

The District Court refused to permit the government to do that, saying that if you permitted the government in an antitrust suit to challenge the validity of patents that would involve a collateral attack upon the decision of Commissioner of Patents granting a patent, and that the statute do not permit such collateral attack.

When the case came to this Court on the government’s appeal, the Court said it was actually unnecessary to decide that issue because it concluded that what the defendants had done in that case could not be justified by their patents.

But it said that because of the significance of the issue was unwise to leave that holding as a precedent, and therefore took pains to correct.

And I would like to read to the Court the ground on which this Court held that the District Court had erred in Gypsum in saying that government couldn’t rely on the patents.

It’s in 333 U.S. of Pages 387-388.

The Court said, “In an antitrust suit, instituted by a licensee against his licensor, we have repeatedly held that the licensee may attack the validity of the patent under which he was licensed.”

And now I stress these words “because of the public interest in free competition”, even though the licensee has agreed in his license not to do so.

That is the public interest in free competition method.

Even though, the licensee had said he wouldn’t attack the patent, nevertheless he should be given the right to do so.

And the Court then concluded in a suit to vindicate the public interest by enjoining violations of the Sherman Act, that is a suit to vindicate the public interest as distinguished from the private interest involved in the private suit.

The United States should have the same opportunity to show that the asserted shield of patentability does not exist.

Now, of course, as our opponents argue vigorously, this is a different case, because here they haven’t relied upon the patents as a defense, but we think the basic rational of that case and the whole theory of all of this Court’s decisions dealing with the interrelationship of patents and the antitrust laws calls for the same result in this case.

This Court, in recent years, has frequently recognized as it said Lear against Adkins, the important public interest in permitting free and full competition in the use of ideas which are in realty a part of the public domain and the strong federal policy favoring that interest and in Lear against Adkins, it also referred to the publics interest in the elimination of specious patents.

This concept is nothing new.

80 years ago in a case called Pope manufacturing v. Gormully, this Court stated and I may quote, “It is as important to the public that competition should not be repressed by worthless patents as that the patentee of a really valuable invention should be protected in his monopoly.”

Now in the patent laws, the Congress has provided that inventories are to be rewarded with a monopoly for 17 years and this, of course, is designed to encourage invention to see that people who make significant contributions get the financial rewards thereof.

However, Congress has provided rather explicit and specific conditions that have to be met before a patent can be granted.

There are of course, the standards of inventiveness, non-obviousness, the fact that the invention can not be patentable if it was made public more than a year before the applications filed, and also certain things that are involved in this case as to what has to be disclosed in the patent application.

Now, if these requirements are not met, it’s clearly, we think, and this Court has recognized, it’s in the public interest that such patent be invalidated.

The patent monopoly, of course, and for very valid reasons is an exception to the basic principle of free competition that is reflected in the Sherman Act.

The Court itself so stated in the Lear case.

And therefore in the light of that fact that it is an exception to the policy free competition, we think it is important that the patent monopoly only exist when specific terms Congress has provided for it, in fact, are satisfied.

The purpose of a government antitrust suit, of course, is to eliminate restraints upon competition.

By definition, an invalid patent, one that has not met the standards Congress has provided, involves precisely an impermissible restraint of that type.

And we, therefore, think it is appropriate that when the government brings an antitrust suit in which involves patent — in which the patents are involved that it should be permitted in that suit also to challenge the patents, because such a challenge furthers the basic principle of the lawsuit.

That is the purpose of the Attorney General in bringing a suit under the antitrust laws, is to eliminate restraints on competition and where a patent is involved in an antitrust violation that is a restraint also on competition in one which furthers and then in fact strengthens the basic restraint arising under the antitrust laws.

Potter Stewart:

Would it not fall on Mr. Friedman that the government could bring a civil antitrust suit against any patentee claiming that since his patent was invalid and he was a legal monopolist under the antitrust laws?

Daniel M. Friedman:

As a matter of logic Mr. Justice, certainly and in the Court bellow, we argued this case on alternative theories.

We argue that general theory and we also argued this as we have explained in our reply brief the narrower theory that here the patents were involved in the antitrust violation.

In this Court, we have not abandoned the position maintained bellow but we have brought the case to this Court on the narrow ground because we think in this case, we think that in this case, here, the patents were involved —

Potter Stewart:

Well they were not an issues in any sense that of the word.

They were not one of the issues to be determined in this litigation, the way the issues referring by the aliment pleading, isn’t it?

Daniel M. Friedman:

They were not an issue only because–

Potter Stewart:

They were not relied upon by the defendants?

Daniel M. Friedman:

They were not relied upon by the defendants.

Potter Stewart:

Therefore they were not one of the issues to be determined in the antitrust litigation?

Daniel M. Friedman:

Well, except Mr. Justice that we did make an allegation that the patents were involved.

Potter Stewart:

Well, as I say, then it would follow, it would seem to me as a matter of logic that you could bring an antitrust suit against any patentee claiming that his patent was invalid and therefore his exercise of the monopoly violated the antitrust laws.

Daniel M. Friedman:

Well, we would not — the mere fact Mr. Justice that the patent is invalid, would not be enough to establish a violation of the antitrust laws because —

Potter Stewart:

Well patent confers upon the patentee or its assignee the right to exercise monopolistic rights with respect to the patent for the number of years.

Daniel M. Friedman:

Monopoly on the colloquial sense Mr. Justice but this Court held in the Walker Process case that that itself was not enough to establish a violation of Section 2.

That is the mere fact that you have an invalid patent and enforce it, if the patent is subsequently invalidated, that is not enough to establish a violation of section two and therefore in that kind of a case, we would not be able to show that the patent was involved in an independent antitrust violation.

I concede that as matter of logic, the policy arguments I have made, would point to the direction that we can challenge it and everything, but that’s an issues that does not have to be faced in this case, we think Mr. Justice, because in this case, we think the patents are involved in the antitrust violations.

And let me explain just briefly, if I may, why we think that is so.

These patents, basically we think, were the foundation upon which the illegal bulk sales prohibition rested.

To begin with the restriction is contained in the patent licensing agreements.

The agreement between Glaxo and ICI, the original agreement which involved the pooling of patents and the cross-licensing itself was the first time in which Glaxo insisted that ICI should prevent its licensees from selling in bulk.

Now, the thing–

William J. Brennan, Jr.:

But did you say already Mr. Freidman what you have been arguing, you would not argue on the trouble downstairs?

Daniel M. Friedman:

We would not argue?

William J. Brennan, Jr.:

Yes.

Did you say you would or would not?

I thought you say something else.

Daniel M. Friedman:

Well I thought Mr. Justice Stewart’s questions to be did not —

William J. Brennan, Jr.:

Yes, I would tell you differently

Daniel M. Friedman:

Pardon?

William J. Brennan, Jr.:

I was turning to it differently.

Daniel M. Friedman:

You are asking it differently.

Well, I would think even if the Government or if private would bring any trouble.

William J. Brennan, Jr.:

Private party —

Daniel M. Friedman:

No, I would not think that a private party would Mr. Justice.

I don’t–

William J. Brennan, Jr.:

Why?

Daniel M. Friedman:

Because of the role of the Attorney General has in this case.

William J. Brennan, Jr.:

I know, but I thought the theory of the trouble damage sequence private Attorney General.

Byron R. White:

What if the licensee were sued by the patentee here who enforces the license agreement?

Daniel M. Friedman:

He could —

Byron R. White:

Do you think the licensee could answer as hey will– by the way your patents indulged?

Daniel M. Friedman:

Certainly Mr. Justice.

Byron R. White:

Well, what if it it were then?

Daniel M. Friedman:

That he could challenge it.

Byron R. White:

And how about trouble damages?

Daniel M. Friedman:

I would think that if– well the trouble damages would have to be based on a violation on of the — on the violation of the antitrust laws, and we —

Byron R. White:

Well, you then on — would say it appears on the face of the license agreement?

Daniel M. Friedman:

It’s been so held, yes.

The violation of the antitrust laws, but it would not entitle get trouble damages on the basis of invalidating the patent.

Trouble damages could be obtained for the violations of the antitrust laws it would bound.

Warren E. Burger:

You may continue Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice, may it please the Court.

On the Court rules, there was discussion about the relationship between this suit and private litigation and I would just like to come back to that in a minute if I may, because we think it is somewhat anomalous that the Government has denied the right to challenge patents in an antitrust suit that are involved in the violation where it is asserting the public interest yet it’s well settled that in private suits, private bodies in many situations had standing to challenge the validity of patents.

For example, if a patent licensee is sued for infringement or if a person is sued for infringement or patent licensee is sued for royalties, he always has the right to assert as the defense that the patent is invalid.

Potter Stewart:

That isn’t a very historic proposal.

Daniel M. Friedman:

It’s not historic, but it’s the principle that this Court has long since recognized Mr. Justice and indeed it goes a little — it goes even — it goes beyond that, it seems to us.

It goes beyond that because under the patent misuse doctrine, the Courts of equity will frequently deny their processes to bar enforcement of a patent not where there has been a violation of the antitrust laws as such but even where the patentee has engaged in anticompetitive conduct.

And we think that in the light of that settled practice when dealing with the rights to challenge patents in private suits, certainly the Government should have no lesser interest when it is suing to protect the public interest.

Byron R. White:

But the very implication of it is that to adopt a condition against bulk sales that would have been the license or you just —

Daniel M. Friedman:

It seemed — there is no such indication, but it does appear Mr. Justice, I mean the limitation was a part of the patent licensing agreement.

Byron R. White:

I know it was but I thought it was negotiated.

Daniel M. Friedman:

Presumably, one of the conditions for the patent license was that they accepted this restriction and indeed the fact that the appellees considered this restriction so important, I think it’s shown by the fact that when they had their cross-licensing agreement, they agreed that ICI would impose this restriction upon its licensee.

So that it seems to us that this whole thing was part of a single transaction and I just may refer in this connection to point out that the position we are advocating here would fully accord with this Court’s statement only last term in the Blonder-Tongue case, the recognition that this Court’s decisions do encourage authority of testing a patent validity.

And as one final point to make that in this particular situation, if the government is not permitted to challenge this patent, it is unlikely that anyone else will.

And, of course, in permitting challenges by licensees, this Court has stressed that frequently the licensee is the only one who has an interest in challenging.

Now in this case, certainly the three licensees who have had the benefit of what I shall come to when I discussed the relief of basically a noncompetitive, highly concentrated market, there is no reason to think they would have any incentive to challenge the patents.

And the people who are trying to get into this market are the small generic drug manufacturers, who don’t sell under brand names, but they are small companies, the market itself is not an overwhelming and large one, and they would have no interest to challenge it.

Now what is the basic position that the appellees urge as to why we shouldn’t have this power. First of all, they tell us that, “Well, you don’t come within Gypsum, because we have not relied on the patents as a defense.”

Well, Gypsum, of course, merely held that where the government — where the defendants do rely on the patents as a defense, the government can challenge the patents.

It didn’t at all deal with the question where if the patents are not relied on as a defense, whether the government can challenge them nonetheless if they are involved in antitrust violation.

And then I come to the one, but I just want to say here at the exhibit, basically, we don’t think they make any convincing policy arguments as to why the government should not be able to do this.

Their major argument and indeed the principal reliance of the Court — District Court was on this Court’s decision in the Bell Telephone case, 75 years ago.

The Bell Telephone case was suit in which the government challenged certain of the Bell Telephone patents as having been obtained by fraud on the Patent Office by alleged misrepresentations, and we thus brought a suit to cancel the patents.

The Circuit Court held that the government had not proven fraud and dismissed the suit and this Court affirmed the dismissal saying that the whole theory of the government that these people had failed to move with sufficient dispatch before the Patent Office and that therefore they were extending the life of the patent and the protection of the patent.

They said that is not fraud within the rule that permits the government to challenge a patentee for — to cancel a patent for fraud.

And then the Court went on and commented on a statement made in an earlier decision involving the Bell case, which it suggested that the government could also perhaps challenge a patent for mistake on the part of the patent officials, their judgment, and so on, and — what the Court said was that, “In making the statement of the earlier case, it was not intending to suggest or state that.”

And this is the quotation, “The Courts of the United States sitting as Courts of equity could entertain jurisdiction of a suit by the United States to set aside a patent for an invention on the mere ground of error of judgment on the part of the patent officials.

That would be an attempt on the part of the courts in collateral attack to exercise an appellate jurisdiction over the decisions of the Patent Office, although no appellate jurisdiction has been by the statutes conferred.”

Now, to begin with, the rationale that was announced in the Bell Telephone case that permitting the Government to maintain such a suit would amount to an impermissible collateral attack on the Patent Office.

That is the identical theory upon which the District Court in Gypsum refused to permit the government to challenge the patent.

And one which we think this Court implicitly rejected in its Gypsum decision.

And, of course, as a practical matter, patents are challenged and the decisions of the Patent Commissioner are reviewed all the time in the courts of this country.

And what happens is whenever there is a patent suit and the patent is challenged, the District Court in determining whether the patent is valid or invalid to that extent reviews the decision of the Commissioner of Patents.

Byron R. White:

Yes, but that’s because without the patent, the case on one side of the other falls?

Daniel M. Friedman:

Well, but I am suggesting Mr. Justice that the fact that the Court is in effect reviewing the decision of the patent commissioner.

Byron R. White:

Yes, but in this case whether or not the patent is valid doesn’t determine your case in terms of whether there is an antitrust violation?

You do not need to hold the patent invalid to argue that there was a per se violations of the antitrust laws?

Daniel M. Friedman:

No, but we think this is an appropriate ancillary phase of the case.

Byron R. White:

So is it the jurisdictional question — is it the pendent jurisdiction question?

Byron R. White:

Is the issue just — does the Court have independent jurisdiction to consider this question or is it pendent to the antitrust issue?

Daniel M. Friedman:

I think it is pendent to the antitrust.

I think under the Section 4 of the Sherman Act, the jurisdiction, the jurisdiction of the District Court embraces anything that is ancillary and in —

Byron R. White:

But absence a separate antitrust claim, would you say there is jurisdiction?

Daniel M. Friedman:

Perhaps under other sections, but not on the — I wouldn’t think under Section 4 of the Sherman Act, under the other provisions dealing with it.

Byron R. White:

Logically, your position would be that there was under the Sherman Act, logically, you would say that it was an antitrust — if there is an invalid patent being practiced?

Daniel M. Friedman:

We don’t say that the mere practice of an invalid patent itself is a violation of the Sherman Act.

What we do say is there have to be more than that to be a violation of the Sherman Act, and I assume your hypothetical was that all we had was just a naked suit challenging a patent.

We wouldn’t say that there is jurisdiction to deal with that under the Sherman Act.

Byron R. White:

I just want to tip your tongue is there some other section that the (Inaudible) patent?

Daniel M. Friedman:

Well, I would suggest two sections, Mr. Justice.

Byron R. White:

An act regulating commerce or what?

Daniel M. Friedman:

Well, one is 1338 (a), the original jurisdiction of any civil action arising under any act of Congress relating to patents and then also the section where the United States is the plaintiff in the suit.

William H. Rehnquist:

Mr. Friedman, substantively the question is not one of whether a patent maybe collaterally attacked since they are in other proceedings, but whether that it’s one of standing, whether the Government has standing to collateral?

Daniel M. Friedman:

Whether the Government has standing to challenge a patent involved in an antitrust violation where there is no claim of fraud on the Patent Office and where the patent is not relied on as a defense.

That’s the case that we have put to the Court.

Now of course the other —

Potter Stewart:

Did in Gypsum implicitly decide that question against you?

Daniel M. Friedman:

We think not Mr. Justice —

Potter Stewart:

In Gypsum, the Court does said that where the patent is relied on, the Government can attack the patent’s validity.

It went on to say in this case, there was an antitrust violation, Gypsum, regardless of the patent’s validity and therefore we don’t need to decide the patent’s validity in this case?

Daniel M. Friedman:

But then — and then they went on to say —

Potter Stewart:

In other words, saying where reliance on the patent does not give immunity from the antitrust action, we don’t need to decide it?

Daniel M. Friedman:

But the Court went on and did decide.

The Court went on and —

Potter Stewart:

The validity of the patent?

Daniel M. Friedman:

No, no, I am sorry.

Potter Stewart:

That’s what I am — we are talking about here?

Daniel M. Friedman:

But of course in the Gypsum case, we were challenging the validity of the patent only because the defendants were relying on it, whereas in this case, they are not relying on it, and we are challenging the patent that’s incidental to antitrust violation.

Now if I may come to two other respects in which I think the Bell case is quite different.

Daniel M. Friedman:

First of all, the statement in the Bell case of course was not necessary to the decision in the case because the actual holding in the case was that the Government had not proved fraud.

Secondly and more importantly, the Bell case was decided only seven years after the Sherman Act was passed.

There is no reference in the opinion in the Bell case to the Sherman Act and again, the Bell case did not involve any challenge to a patent in connection with an antitrust suit.

It was a naked challenge to the patent and the Court said that in a naked challenge to the patent by the Government where the Government challenge is to fraud in fact, that it cannot challenge is just on the ground of a mistake on the part of the Patent Office.

And we think that in the light of the more recent decisions of this Court, dealing, giving broader rights to challenge patents and the right of its repeated statements of the importance of permitting authoritative testing of patents.

If Bell is read as precluding, the Government’s challenge to the patent in this situation, we then suggest that Bell should be reexamined and rejected to that extent.

I would now like to turn to the other phase of this case which is the relief aspects, and what we think is the Court erred in failing to grant us these two additional items of relief, that is to require the appellees to sell in bulk and to give reasonable patent license royalties.

This Court has many times specified the purposes of antitrust relief to cure the ill effects of the illegal conduct and protect the public from its continuation.

It has said that the relief must be affected to restore competition and in a much quoted statement from the International Salt case that it should pry open to competition a market that has been closed by the defendant’s illegal restraints.

Now of course, the District Court has brought discretion in framing relief in antitrust cases, but this Court again has pointed out that it has never hesitated to step in what is described as perhaps the most critical aspect of the antitrust case to take whatever steps are necessary to ensure that the relief is adequate.

Now, while the bulk sales prohibition was in effect, there were no sales of this product in bulk in the United States.

The three licensees had all of the market and as would be expected in this kind of a situation, the other prices were virtually identical.

We have figures in the record showing them prices charged by the three licensees at wholesale to the druggists.

On the regular size of the capsule, the prices were identical of all three of the licensees, $10.40 for a bottle of 100 capsules in the most popular size.

In the micro-size type of drug which as I indicated is the most popular at the moment, there were micro-size variations in the prices, one of them charged $12.14, the other $12.10 and the other third one, $12.04, once again, substantially identical prices.

The three licensees are three of the major drug firms in this country.

They sell drugs under well known trademark names.

They advertise extensively.

They engage, as we all know, in very extensive promotion.

There are several small firms in the drug business who are so called generic drug manufacturers.

They sell the same product under the generic name or under their own name which is not well advertised.

These firms compete on price.

They do not have the big name brand, but they are able to sell the drug cheaper and many people are willing to accept the non-named brand for a lesser price.

And the evidence in this case is that for the generic distributor to be able to compete effectively with the brand name on a product like this Griseofulvin, they have to sell it about two thirds the price that the brand name charges.

There is also indication that several of these drug manufacturers are very interested in going into the Griseofulvin business.

After the appellees had canceled, shortly after the time the suit was brought, the restriction on bulk sales, American Home Products offered both bulk Griseofulvin and the capsule form in this country.

But the testimony is that they offered it at prices to these generic manufacturers at which the later could not effectively compete in the market.

For example, ICI charged its licensee, American Home $78 a kilogram for bulk Griseofulvin.

ICI in turn offered the same bulk product to these generic firms at prices ranging from $118 to a $141 a kilogram.

It’s hardly surprising that the other firms beside the licensees were not interested in purchasing and could not do so economically.

Daniel M. Friedman:

Now American Home Products also offered capsules and once again, statements by two of the generic manufacturers stated that they couldn’t compete effectively with American Home Products at the prices American Home was quoting to them, which presumably was a price at which American Home would make a profit.

Two of them did buy some capsules.

Now once more firm bought a million capsules for distribution in order that came to about $46,000 and after they had finished distributing with all their marketing and distribution cost, they discovered that they were losing $2.30 on very bottle they sold.

And when American Home Products refused to reduce the price, of course, they stopped any broad scale promotion of Griseofulvin.

The $2.30 figure is contained in the statement at page 228 of the record.

Now this evidence as to what happened after the parties terminated their bulk sales restrictions, demonstrates to us that an order of the District Court merely prohibiting the restraint of both sales isn’t going to have any effect at all in restoring competition in this market.

All that order would do would be to continue by judicial decree of what the parties have been doing up till that time.

There is no reason to think that if all we have in this case is an order directing the appellees to stop prohibiting bulk sales that there is going to be any change in this market, why should the appellees now decide to permit the various competitors to come into the market?

There is no reason why because this market has continued for 10 or 12 years in a concentrated noncompetitive situation and there is no reason on earth why unless they are required to do something more than what has been done that there is going to be any competition.

The appellees have been selling at, one of them, Glaxo at $60 a kilogram, ICI at $78 a kilogram for many years.

There is no reason to think that they are not profiting in this business and we see no reason why they shouldn’t also be ordered to sell and to offer this product to the other people in the United States who want to enter the market.

We want to make it very clear and in our proposed judgment, all that we are saying is that if they continue to sell in this country, if they continue to sell in this country, they have to offer the product to all on non — at a nondiscriminatory level and we think this is what is required in order to inject some competition into this market.

And when I say inject some competition, frequently the relief is framed in terms of to restore competition, to restore the status quo.

In this case, there is nothing to restore because there has never been any competition in this market.

This market started on a noncompetitive concentrated basis and that’s the way it’s continued.

We also are urging that there should be compulsory licensing of patents at reasonable royalties.

We have covered that fully in our brief and I would then like to reserve the balance of my time for rebuttal.

Warren E. Burger:

Mr. Sailer.

Henry P. Sailer:

Mr. Chief Justice, may it please the Court.

As Mr. Friedman has indicated, there are two appellees in this case and I represent the appellee Glaxo Group Ltd., and I am speaking on behalf of Glaxo, although many of my points will apply to both the appellees.

I have found the Government’s position on what I call the basic issue in this case, the non-relief issue to be quite illusive from the beginning, but I think I am now understand what they are saying in this Court and I would like to state it as I understand it and then direct my remarks to that — upon then.

I think their position is this that when the Attorney General brings in ordinary antitrust case to challenge ordinary antitrust restrictions and somewhere in the picture there are patents and I will get back to this.

He should have a right first to try the antitrust suit and then after that suit is determined and he has got an antitrust judgment and got antitrust relief, go on and try a patent suit on the question of patent validity with no antitrust issues, with nothing, but ordinary patent law issues, what I call issues arising under the patent for an invention and like.

Now I understand that the Government seeks that position even where as in this case the outcome of the antitrust suit doesn’t depend in anyway on the validity or invalidity of the patents.

I think that’s conceded here and even whereas here, the Government has won the antitrust suit and has gotten antitrust relief.

Now the appellees think that there is no more or less reason for allowing a pure, what I call a pure ordinary patent suit in this situation than there would be for allowing the Attorney General to bring an ordinary patent validity suit all by itself whenever he saw fit to do so.

I don’t understand the appellant to press that right in this case and I will come to some observations about that question, but I think that I am unable to distinguish between the two situations.

Now, appellant has made some broad factual as well as legal arguments in this case, but the adjudicated facts are very narrow indeed and I would like to emphasize them with the Court’s consideration.

This case involves restrictions on the resale, the resale of Griseofulvin.

The appellees also had agreements that related to the sale by patent licensees of any Griseofulvin that they might manufacture, but those agreements have not been challenged by the Government in this case.

Henry P. Sailer:

They could have challenged them, they chose not to challenge them.

The Government didn’t charge any overall conspiracy.

It has three judgments on the merits and each one is directed to a written provision of a written contract.

In each case, a provision that said, you may not resale bulk Griseofulvin, in bulk.

Now, there is no question whether those provisions can’t be justified by patents, no attempt was made to justify them by patents.

There are ordinary restraints on the resale of the purchased commodity.

The record shows that when Glaxo made these agreements, it didn’t have any doubt or question about its legality.

Glaxo, the record shows, is an English Company, still has no place of business in the United States.

The provisions I am talking about had long since been canceled.

The ICI provision with its vendee was canceled more than five years ago and the Glaxo provisions were canceled more than four-and-a-half years ago and the appellant has a judgment that expressly prohibits their revival and that judgment is already currently effective.

Now in the Trial Court, appellant made that challenge and they also sought to challenge two patents on the pure question of ordinary patent validity.

The original complaint challenged an ICI patent leading to dosage form Griseofulvin that it issued in 1959.

And later, after sometime, appellant sought to amend their complaint to challenge the Glaxo patent on Griseofulvin in a particular form, so called the micro size or ultra-fine form.

Now that patent hadn’t even been the issue until the fall of 1967, which was shortly before the suit was brought and very shortly before the restrictions, the only restrictions we are talking about were terminated and canceled.

It hadn’t existed at all at the time these agreements were entered into or for years afterwards not for years.

Now, I do think it’s important to emphasize, although I think the Court now has been made aware that the patents weren’t challenged because they — on the ground they were invalid because they have been misused or because they have been used to accomplish illegal restraints or anything like that.

They were challenged on the ground that Patent Office had made a mistake under the patent law in issuing, that’s the sole ground for challenge.

And below, I understand the appellant not to have relied on the antitrust laws and I invite the Court to examine the appellant’s main brief on this subject below which begins in the record at page 263.

They relied on a claim inherent power of the Attorney General to bring suit to cancel endowed patents.

The Trial Court stated the issue as it understood it as, “Whether the United States can challenge a patent independent of any antitrust rights,” that’s the way the Trial Court formulated the issue that it decided and the Trial Court held that it could.

The appellant didn’t petition to reconsideration and it didn’t suggest to Trial Court, didn’t suggest the Trial Court that it misunderstood the issue, it is wrong to point that in the issue.

Now, the appellant hasn’t appealed the question of the inherent power of the Attorney General to challenge patents.

I do not think it could appeal that question to this Court under the Expediting Act, that’s not a question, it my judgment that arises under the antitrust laws.

Here, they formulated a new issue and I submit a different issue which is they stated variously, but whether patents that are involved in or essential to or the foundation of, or the keystone of, these are all terms they use, can be challenged under the antitrust jurisdiction on pure patent law grounds in an antitrust case, even when that challenge is not necessary to enable the Government to reach the antitrust violation, only antitrust violations of it.

Now, in their reply brief in this Court, the Government claims that they did present this question that they now seemed to present what I call the patents involved in question to the Trial Court.

Now as I read the record, this simply isn’t correct.

The only material they cite in support of this proposition are in Footnote 1 of their reply brief and I submit that those questions don’t raise the issue meaningfully as the ICI and don’t even raise at all as to my client, Glaxo.

None of the Government’s papers below as to Glaxo ever mentioned any alleged involvement of Glaxo’s patent with any antitrust violation, but the Government says here the questions one of law and therefore the Court go ahead and decide the question, assuming that the patent was indeed involved in an antitrust violation.

I suggest Your Honors, that whether the Glaxo’s patent was involved in the restrictions on resale, we’re talking about in any sense relevant here, is not a question of law but a question of fact.

Appellant didn’t show below and it didn’t ask the Court below to find and the court below didn’t find that Glaxo’s patent was an essential element in the original agreements, Indeed it couldn’t have possibly found out that the patent didn’t even issue until seven or eight years after the agreements we’re talking about was made.

Henry P. Sailer:

It didn’t ask the court to find.

The court didn’t find that the violations would have been anymore of that, did any different if Glaxo micro size patent which issued seven years, eight years after the agreements were made had never existed.

I suggest that there is interesting contrast between the situation here and that existed in the Empsall (ph) 448 F. 2nd is cited in the appellant’s reply brief where the Trial Court was asked to make and did make very specific and detailed findings on the actual involvement of the patent that was an issue in an independent antitrust violation.

William H. Rehnquist:

Mr. Sailer, both you and Mr. Friedman used the term involved in.

What do you conceive that to mean in the context here?

Henry P. Sailer:

Well, I – and they should ask Mr. Friedman that question, Your Honor, that I don’t know, don’t know what he does mean that, but I suppose my answer is that whatever it means, if it means anything relevant at all it seems it must mean a sine qua non or a foundation or basis of the agreement that is alleged to violate the law.

Otherwise it is there, there is such a patent, I concede that, but if it doesn’t mean that I don’t know what possible relevance involved in any other sense would it have.

I dealt with this point in the page 15 and 16 of my brief and I like the Court’s attention to it.

I just don’t think the factual predicate for the agreement or the issue they seek to raise at least as to my client is he — but I don’t need to rest on that narrow, although dispositive grant as to my client.

Even if the Glaxo patent had been truly related to or involved in any sense in the antitrust violation, I suggest that would be no reason to give the Government a right to engraft on this ordinary antitrust case, a straight patent validity suit involving no antitrust issues, nothing to patent issues unless as in the Gypsum case, it was necessary to do so in order to reach, in order to cure an antitrust violation.

That’s not claimed here.

The government doesn’t claim that unless it’s permitted to try to invalidate the patents, it can’t reach the antitrust violation or obtain antitrust relief.

The only antitrust violation had been abandoned five years ago, its revival has been enjoined.

Now, appellant concedes in its reply brief and Mr. Friedman again conceded on oral argument that they could not have invoked the Sherman Act jurisdiction they say solely to raise the patent validity issue.

But at the same time they wanted to first try an antitrust case and having tried it, now try altogether separate and distinct patent validity case.

And the logic of that simply escapes me, that it seems to me that they suggested no reason why the party should now go through a pure patent litigation.

It wouldn’t have equally existed if there hadn’t been any antitrust suit in the first place.

The Government does argue that invalid patents are burdens on commerce and like something logs and screams and so forth but that kind of argument simply proves too much here, that is an argument that will be equally applicable.

Byron R. White:

Well you might argue that if an antitrust violation is achieved through the mechanisms of the patent, that it gave the patentee such a leverage that he could achieve certain restraints of trade that he might not otherwise achieve, that if they could argue it just as the matter of remedy?

Henry P. Sailer:

Yes.

I want to make it perfectly clear Mr. Justice White that the Government mistakes our position and I think misunderstands our position in their reply brief.

We don’t have — take this latest issue with the proposition that in an appropriate case, the Court in an antitrust case plainly has power to —

Byron R. White:

If you find in a license agreement a condition that you won’t sell a territorial restriction or a customer restriction and instead of patent agreement.

You wouldn’t think — there isn’t so unreasonable thing that the licensee is agreeing to that limitation of his market only because he is on the hook, he wants that patent, use that patent?

Henry P. Sailer:

Well, I can readily agree with your arguendo on that Mr. Justice and say at the same time that under those circumstances it might will be appropriate for a court to decree compulsory patent licensing for example.

But here we are talking about —

Byron R. White:

Even there it wouldn’t be fully irrational to say that as a matter of remedy they ought to get rid of the power that was the fulcrum for this violation?

Henry P. Sailer:

Well, I have a hard time seeing —

Byron R. White:

I do agree —

Henry P. Sailer:

— to find an antitrust issue as a — I mean a patent suit as a remedy if you will.

Byron R. White:

I agree with you, it would be very arguable remedy, but nevertheless it’s always one step beyond the compulsory licensing?

Henry P. Sailer:

Well, I would say it’s one very, very long step behind.

Potter Stewart:

Yeah.

Henry P. Sailer:

The Government denigrates our position as somewhat as relying on some old case that was decided long time ago, that is if I understand Mr. Friedman’s arguing.

Now, we don’t simply say, here is this case.

Don’t pay attention whether it is right or not.

There it is on the books and therefore we want you to follow it.

The Bell case was decided in 1897, 75 years ago and from that day to this, the Government has never claimed the power until this case, that they are now asserting, the power to attack patents even when that is not necessary in order to serve antitrust and reach antitrust violations.

If that rule were changed it would open up a whole new and different class of patent litigation.

It would mean the Government could — there are provisions in the Patent Code for judicial review with the instance of a disappointed would be patentee.

He may take the Patent Office to court.

Congress has not seemed fit to turn that around and say if somebody gets a patent and the Government doesn’t think it should have issued, they can go to court.

There is no such provision in the statute.

I suggest that what the Attorney General is really asking for is an implied general appellate revisionary jurisdiction over the patent.

Now I want to talk about Gypsum for a minute because there is a dispute between the parties as to whom Gypsum helps and I enthusiastically agree with the implication of Mr. Justice Stewart’s question that Gypsum —

Potter Stewart:

I got the idea from your brief?

Henry P. Sailer:

— well, did I say so Mr. Justice, that very strongly cuts in our direction.

In the Gypsum case, the Government had sued and said, “Here is some illegal restraints” and the defendant said, “Those restraints would be illegal if we didn’t have patents but we do have patents.”

The Government wanted to amend their complaint to challenge the patents because without doing so they couldn’t reach the underlying antitrust violation.

And under that narrow set of facts this Court said, if that were necessary to challenge the patents in order to reach the antitrust violation the government should be allowed to do it. But I invite the Court’s attention to what actually happen in that case.

The Court found that the restraints were illegal whether or not the patents were valid or invalid and made it perfectly clear in its view, that was the end of the matter.

If you didn’t go on even so and have a ordinary patent validity suit which is what Mr. Friedman is suggesting here.

I want to next —

Thurgood Marshall:

And so the patent was untouched?

Henry P. Sailer:

In the Gypsum case —

Thurgood Marshall:

Yeah.

Henry P. Sailer:

— they never had any litigation about the validity of the patents.

Now, I want to say one word and only a word about this anomaly argument of the Government.

They say it is anomalous to allow private parties to challenge patents and not allow the Government to do so.

That’s not our position at all but there are situations where both private parties and the Government can challenge patents.

Henry P. Sailer:

And if the Government is infringing a patent and the patentee sues in the Court of Claims which is his remedy, the Government like anybody else can defend on the ground that the patent is invalid.

The Government could seek a declaratory judgment action that a patent was invalid if it wanted to use patent.

So, we’re certainly not positing a situation where the Government doesn’t have the same rights as a private party.

We’re saying it has those rights and no other rights unless Congress gives it.

The other situation mentioned was the misuse situation.

Now I point out a very major difference between the misuse situation of what we are talking about here.

When you would adjudicate patent misuse, you don’t go and have a trial about whether the patent is valid or not, whether the patent should have been issued, whether there is invention, whether there is prior art, that sort of thing.

It is misuse that bars you from asserting certain remedies under your patent for a certain period of time, but it has nothing to do with the validity or invalidity of the patent.

William H. Rehnquist:

Well, does the misuse at trial in effect concede the validity of the patent?

Henry P. Sailer:

Well, in amidst — I guess the answer to that was conceded arguendo I suppose Mr. Justice.

It assumes that I would suppose because the question is implicitly assuming the patent is valid, how much will we limit nevertheless for and what period the enforcement of that patent by the patentee.

Now, I want to say one word on the second question in this case, this question of really — as I pointed out that the only restraint challenged, the only restraint filed in this case was one on the power of vendees to resale.

Now, those restraints had been terminated and the revivals have been enjoined.

Now, Mr. Friedman talks about creating and restoring and so forth competition that it seems to us that what the court in fashioning a remedy in this case had his eye on was to create as far as he could, a market structure, the conduit would likely have existed, had these restraints on alienation never existed.

Now, the Government has made a very revealing statement I think in the course of their argument.

They say determination of restraints is not likely to create competition because the individual economic interest of each of the vendees will cause those vendees not to sell bulk Griseofulvin to their competitors, so their competitors can compete with them.

I agree with them and I suggest that for that reason, although none of us can know certainly that the Government’s own argument indicates strongly that there isn’t any rational reason to believe that if these restraints which the record shows, this is ICI would routinely put into all its patent licensees and distribution agreements.

If these restraints had never existed, I suggest there is no evidence that Schering, Johnson & Johnson and American Home Products which were three appellees and the only people bound by these restrictions would have been enthusiastically out selling bulk drugs to their generic competitors, so their generic competitors could in turn go and undercut them in the marketplace.

And on this point, I want to point one item of evidence that is mentioned at page 29 of my brief and that is that there is evidence about the bulk sales practices of all three of these licensees in this case.

That there was testimony from Johnson & Johnson that it was not and never had been in the business of selling bulk drugs at all.

There was testimony from Schering that at no time during development period had it ever resold a purchased drug in bulk, never, as any purchased drug and I suggest that that is a rather strong indication that there would be no reason to believe that they would have been out selling Griseofulvin in bulk absent this restriction.

And American Home Products, the third licensee in the year 69 sold $8,000 worth of bulk drugs out of total corporate sales of 900 million dollars and I suggest that that indicates pretty clearly that none of these licensees would have been out selling bulk Griseofulvin even if these restraints had never existed.

I am — not want to exceed my half of the time and therefore I would like to leave the question in relief beyond what I have said into my brief and thank you for your attention.

Warren E. Burger:

Mr. Timberg.

Sigmund Timberg:

Mr. Chief Justice and if the Court please.

I should like to open by describing the antitrust violation in this case as found by the court below, because I think it is crucial to both of the issues raised on this appeal.

My client, Imperial Chemical Industries is a British Company that was developing drugs in its UK Laboratories that it considered suitable for the U.S. market.

These drugs were too few to justify in developing its own organization in the United States.

So in 1958, it entered into an elaborate exclusive distributorship agreement with a U.S. Concern, AMHO or American Home Products under which ICI exported the drugs FOB UK port and AMHO took title to the drug which it processed and sold in dosage form on the U.S. market.

That agreement has never been challenged in this litigation.

Sigmund Timberg:

ICI’s antitrust violation did consist of a single clause in a later 1962 agreement, dealing only with the antibiotic Griseofulvin which provided that AMHO, it’s distributor or not resale the Griseofulvin in bulk without ICI’s permission.

This clause was a routine carryover from ICI’s many international drug agreements perhaps involving a hundred countries.

Its purpose was found by the court to be, to ensure a proper worldwide medical standards for the drugs use and preparation.

However, the District Court found that it’s effect to be to reserve in ICI the power to control the conditions under which the bulk drug might be used up.

Applying this Court’s then recent decision in the Schwinn case, the District Court held the clause to be an illegal restraint on alienation violating Section 1 of the Sherman Act.

The government did not charge and the court did not hold that there was any monopolization under Section 2 of the Act.

The record shows that this inadvertent restraint on alienation was canceled by ICI more than five years ago, only four months after the Schwinn decision which the District Court characterized as unpredictable, this is not my characterization and four months before the complaint in this case was filed.

Moreover, the restraint had no effect on competition in the marketplace.

For ICI’s reserved power was never exercised.

No request was ever made to ICI or to AMHO for bulk Griseofulvin for use on the U.S. commercial market, pages 14-15 of our brief sets forth the situation.

In depositions taken by the Government, the offices of one large and one small drug firm testified that they considered the U.S Griseofulvin market too small, too competitive, and unattractive for entry.

That market by the way had shrunk by one-sixth during the two-year period, 1967-1969 from about 8 million dollars retail sales annually to 6.7 million dollars.

By their own affidavits, none of the independents who the Government claims were denied access to bulk Griseofulvin showed any interest in the drug until one year after the restriction was canceled.

Considering the limited operations and resources, these independents in fact could not have engaged in the expensive and extended clinical and toxicological testing as necessary to obtain Food and Drug Administration approval for the drug which we describe on Page 13 of our brief.

Nor could they have sustained a heavy laboratory operating and promotional expenses involved in launching the product on a national market with appropriate medical safeguards.

The record therefore I submit to Your Honors, abundantly supports the District court’s central finding on relief which was that the evidence did not show that a current monopoly condition exists as a result of the bulk resale restriction.

Absent such an effect or result and such a condition there is as we show in our brief no legal basis for a compulsory sale and compulsory patent licensing relief requested by the Government.

Before leaving the rest of the subject of relief to our brief because I do want to address myself to the second issue on this appeal, I should like to point out one, just one fact.

A compulsory sale requirement in this case would involve ICI in a breach of its binding contractual relationship to its distributor AMHO, a party not before this Court.

This is unfair we think to AMHO who has large scale expenditures and efforts both in obtaining the Food and Drug Administration approval for the drug and launching it on the U.S market has built up such a U.S market as there is for ICI’s $200,000-300,000 worth of annual Griseofulvin exports from the UK.

If I may, I should like to address myself to the patents and validity issue and on this connection, I wish to make two preliminary points.

First, the ICI patent is not a worthless and specious patent.

It embodies as we point out in our brief on Pages 12 and 13 a true invention.

The efficacy of the drug was conceded by the Government and its novelty is attested to by the medical literature to which we refer in our brief.

It is not being attacked for lack of patentability and also lack of novelty or utility.

It is being attacked for two alleged errors of judgment by the Patent Office in the allowance of patent claims, Mr. Friedman has described to you.

The question is, is the possibility of correcting such errors sufficient justification for prolonging into an indefinite future an antitrust litigation, the antitrust aspects of which have been concluded after five painful years.

Second, the District Court held that neither ICI nor the Glaxo patent had been abused.

Yet the Attorney General is asking for broader relief, the complete invalidation of the patent then a private defendant and a patent infringement suit could obtained, where patent misuse had been abundantly demonstrated.

On Pages 4-5 of the Government’s reply brief, they do refer to the Morton Salt and Empsall (ph) cases which still establish a doctrine of patent misuse.

Sigmund Timberg:

But I must, I should remind the Court that this Court has held, that the defendant there is only entitled to a stay of the infringement suit until the improper practice has been abandoned whatever that might be in our case and the consequences of a misuse of the patent have been dissipated.

Now Your Honors, we learned for the first time from the Government’s reply brief and from Mr. Friedman’s colloquy, I believe it was with Mr. Justice White that the Government’s position is that in an antitrust controversy, pendent jurisdiction of a patent invalidity claim maybe asserted.

This is my apology for bringing up a case which I have communicated to Mr. Friedman.

It’s the case of United Mine Workers v. Gibbs, 383 U.S. 715.

This case teaches us that for pendent jurisdiction to apply, the main antitrust claim and the pendent patent invalidity claim must derive from a common nucleus of operative facts.

It is clear that the factual issues relevant to the alleged errors of the Patent Office and its allowance to the ICI patent claim which are set forth on Pages 25 of our brief and to which I refer the Court to Pages 437-450 of the appendix have nothing in common with the factual issues involved in the antitrust action.

Mr. Sailer has pointed out that the patent invalidity has no bearing either on the issue of the antitrust liability or on the issue of antitrust relief.

On Pages 30-31 of our brief we indicate that compulsory patent licensing relief is available in the antitrust cases whenever the patent poses an illegal barrier of competition.

In fact, as far as this case is concerned my client by way of implementing its hands off policies as far as the U.S. market is concerned has made its patent generally available for licensing and has granted licenses to five independents on reasonable terms, two of which have already published — purchased Griseofulvin from AMHO, its distributor and AMHO, I should also point out as the record shows has offered to make bulk Griseofulvin available on reasonable terms in at least 15 different cases.

This was in the short period of time before the record of the case closed.

Furthermore, as stated in Gibbs, pendent jurisdiction is a doctrine of judicial discretion justified by considerations of judicial economy, convenience and fairness to the litigants.

The challenge of patent validity supported by the Attorney General flies in the face we think of these considerations.

As this Court pointed out in Blonder-Tongue, it would needlessly promote protected and expensive litigation.

It expands the already crowded dockets of the District Courts.

Under the Expediting Act, this Court would have to review such extraneous patent validity determinations directly from the District Court without the helpful assistance of the Circuit Courts of Appeal.

Also, speaking from the patentee standpoint, such challenges are unfair to the patentee.

He is entitled to assume until Congress has spoken to the contrary that the action of the Patent Office in granting the patents is not be independently challenged by one or two lawyers in the Justice Department, however gifted their powers of analysis maybe.

Finally, from the added aspect of Sherman and antitrust enforcement, these challenges and this would be academic in purpose, those exercises that would operate wastefully to divert the time, money and resources on prosecutions.

A word about the legal issues in the case, we do of course think that public policy considerations do favor the affirmance of the District Court’s ruling, but they determine that the issue was illegal one that goes to the heart of our constitution system of separation of powers.

Has Congress in fact, authorized the courts to entertain this kind of challenge of patent validity.

As this Court said in Simpson v. Union Oil, Congress is the arbiter of the public interest.

Thus, even with a more effective enforcement of Sherman Act was at stake, this Court has been unwilling to confer on private parties, a remedy that had not been prescribed by Congress.

That was the case of Kelly versus Kosuga, it’s cited on our brief.

Similarly, it has been unwilling to confer on the Attorney General a remedy that has not been prescribed by Congress and that is the Cooper case referred to in our brief.

As this Court said in the Cooper case, it is not the function of the courts to engraft on the statute additions which they think the legislature logically might or should have made.

The rule of the Bell case has been stated and we say only that it is more than a sound rule of decision.

It reflects to us a constitution imperative.

For the courts to try issues of patent validity without congressional authorization involves a negation we think of two basic powers conferred by the constitution on the Congress.

One of these is the plenary power of Congress to legislate on the subject of patents.

The other is the exclusive congressional power to prescribe the jurisdiction of the Federal courts, including the jurisdiction to review administrative decisions such as those made by the patent office in this case.

Sigmund Timberg:

Now, in the exercise of this patent power, Congress has paid particular and continuing attention to the administrative procedures for examining and reviewing patents within the patent office and its predecessor agencies and the judicial procedures for reviewing these administrative determinations.

We cite on page 36 of our brief, 12 such cases where the Congress has amended the patent code. Despite this meticulous and specific supervision by the Congress the patent code contains no provision conferring this authority on the Attorney General to initiate in the courts the kind of challenge of patent validity involved in this case.

We also refer in Footnote 42 of our brief to several proposals that have been made giving the Attorney General and other persons the right to collaterally challenge patent validity.

None of these has ever been reported out by congressional committee and it is significant that the impact of these proposals is that the challenger must sue to cancel or revoke the patent in the patent office first before seeking review in the courts and it is submitted that perhaps this is maybe a logical method of procedure rather than the procedure supported by the Government.

William H. Rehnquist:

Mr. Timberg, is the apparently established authority of a court to declare a patent invalid in a suit involving a licensee and a licensor, is that authorized by a statute or is that —

Sigmund Timberg:

It is indeed Mr. Justice Rehnquist.

It has been in the statute I think since 1870.

The right of a person sued for patent infringement to defend case is, I think it’s in the statute.

Yes he may specifically defend on the purpose — on the grounds of invalidity.

I don’t think that’s going to be contested.

In fact, I don’t think the Government has pointed for all of its analogies to —

Byron R. White:

How about it —

Sigmund Timberg:

It’s 35, my colleague informs me, it’s 35 U.S.C. 282 confers that right.

Byron R. White:

And they — more recently in a suit to royalties?

Sigmund Timberg:

Yes and that was along the same line of reasoning, that like to the Gypsum case.

In other words, if the royalties are predicated upon an illegal agreement and it is a private and the illegality —

Byron R. White:

I assume a patentee sues (Inaudible) unpaid royalties, and the licensee says I (Inaudible) the patent is out —

Sigmund Timberg:

I assume under Lear v. Adkins, if that is the case Your Honor is referring to, it would be able to challenge patent.

Byron R. White:

They think this was predicated on to some other —

Sigmund Timberg:

It’s predicated on something else, yes Your Honor.

I would like to, as a matter of fact I would like to —

Harry A. Blackmun:

Mr. Timberg.

Sigmund Timberg:

Yes.

Harry A. Blackmun:

I thought that was the import of Justice Rehnquist’s question.

Now, is that last rule based in statute or in judicial decision?

Sigmund Timberg:

It’s based ultimately on statute, if I may say a word Mr. Justice Blackmun on the question of Gypsum.

In our view Gypsum confirms the Bell case and underscores a paramount authority of the Congress to prescribe the jurisdiction of the courts and the authority of the Attorney General.

In enacting the Sherman Act, Congress did confer jurisdiction on the Federal Courts to entertain antitrust suits that were brought by the Attorney General.

There was a possibility in Gypsum that the defendants would rely on patents of defense to a charge of illegal price fixing.

Hence if the Attorney General will not give them the opportunity to show patent invalidity and that the asserted shield of patentability does not exist, the congressional grant of jurisdiction to enforce the Sherman Act would be frustrated.

Sigmund Timberg:

And this I think is the theme that I would suggest, reconciles Gypsum with the questions that both of Your Honors have been asking.

We say that if the jurisdiction of the Sherman Act would be frustrated and such similar situation was involved in the Walker Process Equipment case, yes, in those cases the court may reach to a patent invalidity defense, but what the Government is doing in this case is independently of raising it as a defense, they are collaterally in their complaint attacking patent invalidity in a situation that has nothing at all to do with the policy of the antitrust laws.

Byron R. White:

Well, what if the Government says that it alleges there has been tying — there is a tying agreement in existence here it is right on the piece of paper.

And the engine of this tying arrangement is the patent, the patent leverage, (Inaudible) the patent.

It’s being used to enforce, to secure and enforce this tying arrangement.

And the Government says, we think the patent is invalid and should be declared invalid as to eliminate this power?

Sigmund Timberg:

It’s in fact that were alleged to be the leverage that made the restraint possible then this would — that might be so, but this is not that case Your Honor.

This is a situation where the leverage that might have made the restraint possible was the fact that two persons control the manufacture of this commodity which is indeed an expensive commodity.

Byron R. White:

They also held patent.

Sigmund Timberg:

They also had patents may I say and they also cross-license the patents, but the reason that they cross-licensed the patents through each other was that they were blocking patents.

They couldn’t even get going in the United Kingdom, on the manufacture of the Griseofulvin unless they cross-licensed to each other.

Byron R. White:

Was the pooling dissolved in this case?

Sigmund Timberg:

The pool couldn’t be dissolved.

The pool that was really a settlement of conflicting patent rights because none of the three distributors in the United States could even have gotten on the market unless they had access to ICI’s dosage pack which as Mr. Sailer has pointed out was the only patent in the field until September 1967 when the Glaxo patent came in.

But the situation in England was much more complicated than that and I would want Your Honors to bear in mind that the 1960 agreement which the government has referred to was an agreement that had worldwide implications.

It was I think agreement between two British companies.

It wasn’t specifically directed against the U.S. market and the particular provision in the 1960 agreement, a good faith provision that ICI imposed this restriction on its distributor was something that was found illegal only to the extent that it affected the U.S. vendees of ICI which was just our exclusive distributor AMHO.

So that unless this Court is going to say that it’s never possible for people who have blocking patents to, like cross-license each other under those patents and that they must automatically license the world.

This the Government’s claim for a licensing in this case is not I think one that is warranted.

That the power — the patent was not used to — was not used to stop anybody from selling Griseofulvin in this country.

The only antitrust violation was the restraint on alienation which was canceled.

In our case, the patent licensing —

Byron R. White:

What if it hadn’t been?

Sigmund Timberg:

If the patent, if the — well, if it had not been canceled then there might the possibility of the Government urging that the dosage patent be made available on a royalty free basis — excuse me, reasonable royalty basis to all applicants which is within the discretion of the District Court.

Byron R. White:

That’s a question of remedy then?

Sigmund Timberg:

It is a question of remedy, pure and simple, Your Honor.

Byron R. White:

And so it would be a question of remedy of they said not only that but we think that the patent should be invalidated.

You could say that it’s a bad remedy but in terms of — but it’s still is a remedy question?

Sigmund Timberg:

It is a remedy question but I get back to the reason why I cited Kelly and Kosuga and the Cooper case, it is if you want to call it a remedy you may.

But it is a type of remedy which we believe should be authorized by the Congress which has authorized all sorts of remedies in this situation.

Sigmund Timberg:

That is our feeling with respect to this.

I don’t think — the only other ground that the Government asserted in connection with jurisdiction was the inherent equity jurisdiction ground, that was what the only ground we thought they argued in the District Court and in our brief we have indicated the irrelevance of the five cases cited by the Attorney General supporting this inherent equity jurisdiction.

None of them involve patents.

Only one of them decided in 1888 involved the judicial review of an administrative determination and we agree with the result in that case because we do believe that the District Court does have the right to inherently to look into patents obtained by fraud.

We therefore conclude that the District Court acted wisely and correctly and urge that its judgment be affirmed.

Warren E. Burger:

Very well Mr. Timberg.

Mr. Friedman, you have about three minutes left.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

We think that this patent — inevitably this patent most assuredly was involved in these violations.

We think the patent in a very real sense was the whole key to these violations because without the power of the patents, these firms could not have been able to impose these bulk sales restrictions.

And when Mr. Timberg talks about the pooling arrangement that this was just designed to correct any problem in the United Kingdom where they had to cross-license.

The fact is that in addition to the pooling of the patents, Glaxo saw fit and feel it necessary in that agreement to prohibit ICI from permitting its licensees to sell in bulk.

So, obviously it was not just something that this people added, this bulk thing has an afterthought, the patent license was all tied in with the bulk situation.

And I would like to invite the Court’s attention to a document on Page 86 of the record in which a man from ICI was discussing with someone from Squibb, not one of the licensees, their interest in Griseofulvin.

And what this man said was I gave Mr. Dow (ph) that is of ICI some idea of the patent situation on Griseofulvin in such form as will I hope have impressed upon him the impossibility of Squibb trading in Griseofulvin without a license from Glaxo under the ICI and Glaxo patents.

In other words, this whole market was tied up.

The whole market was kept free from any competition because of these patents and that’s why we think these patents are involved in the violation.

The leverage of the patents, the power of the patents was an important element in effecting the violation.

Now Mr. Sailer has said that our argument that the licensees’ self-interest will lead them to continue the existing situation proves too much because it says that proves then even had there not been these restraints.

Nevertheless, the licensees independently would have reached the same result.

But the self-interest we’re talking about now is their self-interest in continuing the existing situation and with respect to the claim that the appellees have sold so little — I am sorry, the licensees have in affect been de minimis in selling other drugs in bulk and therefore its a reasonable assumption they wouldn’t have sold these drugs in bulk.

Mr. Sailer referred to statistics shown in 1969, ICI sold only oh, $8000-10,000 worth of drugs.

The documents are contained at Pages 239-244 of the record.

In earlier years for example, in 1961 ICI sold better than $200,000 worth of the drugs and if you look through these particular things in 1962, ICI sold $223,000 of this drug and one other fact, there is also in the record at 234, I am sorry 243-244 which shows bulk sales by the Schering Corporation of other drugs.

And in a period of 10 years, this firm sold approximately 11 million dollars in bulk other than Griseofulvin.

In the face of that, we think that it cannot be said that if it had not been for these restrictions in the bulk sales, they nevertheless would have accomplished the same objective.

We don’t know.

We do know there were these restrictions, we do know that the market filing this restrictions is noncompetitive and we think appropriate relief is to make it competitive for the first time.

And Mr. Chief justice, I have misspoke myself at one point where I said, ICI and I meant American Home Products.

Mr. Sailer is properly correct.

Daniel M. Friedman:

Thank you.

Warren E. Burger:

Thank you gentleman.

The case is submitted.