Walker Process Equipment, Inc. v. Food Machinery & Chemical Corporation

PETITIONER:Walker Process Equipment, Inc.
RESPONDENT:Food Machinery & Chemical Corporation
LOCATION:Juvenile Court

DOCKET NO.: 13
DECIDED BY: Warren Court (1965-1967)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 382 US 172 (1965)
ARGUED: Oct 12, 1965 / Oct 13, 1965
DECIDED: Dec 06, 1965

Facts of the case

Question

  • Oral Argument – October 13, 1965
  • Audio Transcription for Oral Argument – October 13, 1965 in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corporation

    Audio Transcription for Oral Argument – October 12, 1965 in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corporation

    Earl Warren:

    Number 13, Walker Process Equipment Incorporated, Petitioner, versus Food Machinery and Chemical Corporation.

    Mr. Merriam.

    Charles J. Merriam:

    Mr. Chief Justice and members of the Court.

    This case comes here on petition for certiorari to the Seventh Circuit for affirming an opinion of the District Court on two different aspects.

    The first was the dismissal of the original complaint for patent infringement on the latter patent which I will go into, after it had become apparent that the patent had been obtained by fraud upon the Patent Office and without an opportunity to obtain findings of facts with respect to that fraud, and also, without awarding as requested attorney’s fees in connection with the dismissal.

    The second point of time, perhaps more important here was the dismissal of Walkers’ counterclaim — or rather second amended counterclaim which setup a cause of action, allegedly, based upon the fact that the plaintiff FMC had obtained its patent by a fraud from the Patent Office and failing to point out to the Patent Office, and in filing a false oath with respect to the absence of prior use more than a year before the patent was filed.

    That was dismissed on the ground that a plaintiff in a declaratory judgment action which was — the counterclaim was taken to be cannot raise the issue of fraud because that would in effect be invalidating the patent which it could only be done by the Patent Office, it distinguished from cases where a fraud was setup in defense.

    The latter patent relates to the treatment of sewage and it is in the class of what you call aerations equipment and where long pipes, perforated pipes or tube are put into the bottom of the incoming sewage vessels and a stream of air is passed through that sewage.

    These pipes, if left by themselves in the old days, clog and the only remedy was to drain the tanks and go down and clean off the pipes, which was not exactly an appealing job.

    And eventually, the Chicago Pump Company which is a division of FMC, developed a so-called swing diffuser in which the pipes were mounted on a swing apparatus which would swing them up so they could be cleaned out of the tank.

    That involves some difficulties because of the long arm of the — it was necessary to swing them out and it involve a considerable torque and — so the present invention came along, a so-called invention, in which the — instead of a rigid arm, they need action or hinged arm to put in so that the torque was left, you could left this that’s almost straight up.

    In spite of the fact that the only improvement was in the lifter arm, the patent covers the entire assembly including the tanks of which the end diffuser pipes, which the villagers and Municipalities themselves ordinarily installed.

    This — the result of the patent however, was to permit the Chicago Pump Company and later FMC, which took it over, to have a complete monopoly on swing diffusers and a substantially complete monopoly on diffuser equipment itself.

    The — Mr. Forest who represented FMC himself admitted at page 50 that they had had practically no competition in the diffuser field.

    And at 55, which is a motion filed for dismissal by FMC, they confessed that they had only been able to find one single instance of infringement up to a time or after the patent had expired.

    What happened commercially was that the Walker people got into this business much later than FMC.

    By 1954, they had developed what they called sparger and this appears at page 74 of the record, which used a — what they believed to be a non-clogging type of diffuser.

    So that it did not have to be cleaned and therefore it did not have to be lifted out.

    But they were not able to convince the municipalities of this and after all, there are some reasons for that because you have to convince somebody that five years from now, he’s not going to have to clean something that he wants to be convinced about.

    And the — at any rate, Walker was unable to make much of the penetration into the field because of the lifting — this — the action lifter.

    However, about 1956, the Walker people, who remains not described in the record and I don’t know what it was, got a wind of the fact that there might have been a prior public use.

    And the patent was applied for on February 2nd, 1942 and they’ve got wind of an earlier device more than a year before, sold by the plaintiff but no actual information.

    But they wrote frankly, a letter to FMC which appears in page 16 of the record, pointing out that they had heard this and asking them to investigate.

    FMC replied, the reply is not in the record but at page 62 in the pleadings, it appears that they simply denied any responsibility in looking into the matter and they didn’t.

    However, Walker got some courage up and sold an infringing device to the City of Houston, in 19 — in or about 1960.

    And in June of 1960, the suit from which this arises was brought against Walker and Chicago alleging infringement.

    Now, that was only two and a half months before the patent expired.

    The process of discovering followed, and it was not until the winter of 1962, that we obtained from the plaintiff, the documents which are in the record at page 21 to 27 which showed that prior to February 2nd, 1941, there was an operation at the Hunter Airbase in Savannah, Georgia an aeration system involving these lifter arms.

    That came hard and I’m not going to go into great details of what happened but there was a great deal of evasive answering of interrogatories until these documents came out.

    And even then, it was maintained by FMC that was not a prior use because the claims of most of them call for these presence of some means of pulling out the diffuser tube, because they had supplied the crane, although at page 40 of the record, they admitted that the cranes were there and ready for use and at page 62 in the amended complaint, it was alleged that the — they were there and that was admitted by the motion to strike.

    Charles J. Merriam:

    Now, that was followed in September of 1962 by a motion for summary judgment on the part of defendant, alleging that there was a prior public use, and asking that the complaint be dismissed for that.

    In view of the fact that there was a good deal of — well, on October 5th of that year, a month later, the plaintiff filed an affidavit purporting to answer the question of prior public use and as a result on October 18th, these dates have some importance to the sequence and that’s why I’m going into them.

    The depositions were taken and at the beginning of the deposition, the plaintiff announced that they were going to move to dismiss their complaint with prejudice and would we want to take the depositions anyway.

    Well the depositions were taken, they confirmed what I have said to the court, and the — then the plaintiff did moved to dismiss and that motion was granted in February of 1963, at which time our motion for attorney’s fees was denied and our motion to file in the amended counterclaim was granted which was done, that counterclaim appears at page 71 of the record.

    Later in June, a second amended counterclaim was filed and it was — it was a motion to dismiss and that motion was granted in October.

    Now, so far as the law on the antitrust aspects of this case are concerned, I’m going to touch fairly lightly because I think Mr. Friedman will cover it in more detail and I don’t want to trespass or overlap.

    But I will say this much, the — it’s very strange that the Court of Appeals decided this case against us on the basis of several cases, none of which is cited in this Court by our opponents which is relied upon.

    The thrust of the argument of respondents is that no relief can be had here.

    Because of now for the first time, the question of relevant market is raised, which was not raised on motion, it was not raised as a special pleading and it is raised here for the first time.

    The basis of our understanding of the counterclaim is that this Court in the Hazel Atlas – Hartford-Empire case, on the basis of a fraud far less serious than the one here because it involved only an article which was in fact true, although represented to have been written on a different way than it was written.

    Not only held that patent invalid, but permitted a reopening of cases which had been decided years before.

    And in the Shawkee case, which is also in our brief, directed that recovery should be had on account of this improper use of the patent, which recovery was in the Hartford against Shawkee case in 163 F.2d actually granted, including attorney’s fees.

    In that case, lost business was not covered because they said that the proof on it was too conjectory.

    Now, what our opponents really come down to in this case is, that they assert that we are seeking to have the patent — at least, this is what the Court of Appeals held on their request, that we are seeking to have a patent thrown out to an adjudication in rem rather in persona which is the ordinary remedy on a patent infringement suit.

    Actually, nothing of the kind was involved here, the patent expired several years before the judge dismissed our counterclaim.

    And why — anybody should think that it was necessary to throw out or have declared invalid the patent which had already expired, we don’t know and they have not explained.

    The — what did they effectively ask is that if this case had gone along, they concede that if we had gone along as in the Hazel-Atlas case and the patent had been found invalid as we had a right to defend against it in the complaint.

    But then, all of these remedy would have followed.

    But since they were permitted over — in acquisition to our counterclaim to dismiss their complaint that there should be a different rule of law, either no reason is given for such a different rule of law, we don’t see any.

    All we ask is that here is somebody who has taken a patent which was improperly obtained from the Government and that is admitted of course in the motion to strike and used it to the detriment of our client.

    And the detriment of the client had clearly shown in the pleadings, four lost jobs are shown and a possible fifth, involving enormous amount of that — up in that — scores a thousand of dollars, there’s also a showing that other business was probably lost because of the denial of the right to make the action lifters, all of which is a definite damage and all of which accrued solely because plaintiff had in its possession a patent which if the facts had been told to the Patent Office, if there had not been a false oath that was filed, namely that there had been no prior public use, we would not have been faced to it and we would have been able to compete.

    There’s actually allegations on the — there are actually allegations on the record showing losses of up in the — or excess profits to the plaintiff up around $12 million or more, because of this cloning of a patent which they knew or should have known because the acts were there, was invalid.

    No, I’m not going to talk a great length about the matter of relevant market because I think that also comes in Mr. Friedman’s area, but I will say this.

    The respondents do not appear to question the fact that wherever there has been any kind of a tying agreement involving a patent, that that is per se a violation of the antitrust law.

    They say this is not a tying case and I suppose in the classical sense, it is not a tying case because this was a 100% tie where there’s — everything here was unpatented but it was tied to a patent as if it were patented.

    And why there should be a less severe rule in the case where everything that was sold was really should have been outside of the patent laws, then a case where the — only a part of what was sold was outside of the patent laws, I don’t know.

    I also say although the question is not clearly delaminated in the pleadings because while it is the diversity is shown of the two parties, it is not shown where the primary office of the FMC is, although actually it’s in California.

    I think there would have been a common law diversity action here for fraud because we were harmed by their fraud.

    However, I don’t think that question necessarily has to be considered on diversity which has been pleaded.

    I think that the counterclaim certainly drew out in the transaction pleaded in the original complaint, mainly here was a patent.

    Charles J. Merriam:

    They were sued on because of the patent.

    We were harmed and I think the two transactions are relevant in that respect.

    So far as the matter of attorney’s fees is concerned, the law of course is clear, the Court may and has discretion to award attorney’s fees in an extraordinary case.

    I think beyond any question, this is an extraordinary case, the fact that the Court did not let it go to a final proof either on the complaint or on the counterclaim to show that there was actually fraud, to make findings of fact as to fraud.

    I think, there should be no excuse and rather should be in our favor and instead of the Court.

    I think you do the discretion, although I think that in view of the Shawkee case, the 163 F.2d, the — if there is a reversal on the other point, the rulings of this Court in Hartford-Empire and in the directions for Shawkee would clearly cover us and permit the recovery of the attorney’s fees as justified on the final outcome of the case.

    So when I say that while this is an extraordinary case, I don’t know of any other fraud of this nature that was not reimbursed by attorney’s fees.

    This may or may not be moot depending on what happens to the other issue.

    Earl Warren:

    Mr. Friedman.

    Daniel M. Friedman:

    Mr. Chief Justice, may it please the Court.

    The United States is participating in this case as an amicus because of its disagreement with the ruling below, that a charge of monopolization and violation of Section 2 of the Sherman Act cannot be predicated upon the enforcement of a patent that was procured by fraud on the Patent Office.

    And I want to emphasize that the outset as my colleague has done, that as the case comes here — it comes on the dismissal of the counterclaim.

    So we must assume for the purposes of argument that the petitioner can prove what he alleges, there are some suggestion by our opponents that in fact this doesn’t amount to fraud.

    I think that’s a question that’s not in the case at this point.

    We take two positions here and I might just mention in passing, we take no position on the propriety of the denial of the award of attorney’s fees, we take two positions here.

    First, we think that the stated basis upon which the Court of Appeals and the District Court dismissed this counterclaim, that the maintenance of this suit would amount to an illegal attempt to annul a patent, not permissible because only the United States may bring such as suit, is plainly an untenable basis for its decision.

    And indeed, as far as we can read the respondent’s brief, they no longer really seek to defend that ground.

    And secondly, we shall argue that passing that point for the moment, the complaint in this case does state a violation of Section 2 of the Sherman Act and that the petitioner therefore should have been permitted to go to trial on that issue.

    Now I’d like first to discuss the grounds given by the Court of Appeals, that is, they said is a well-settled rule that only the United States may bring an action to annul or cancel a patent.

    And they said that to permit this action to go forward where the claim is, that the patent was illegally procured would do violence to that rule.

    We think the short answer to that is that no relief that would be given in this case would in effect annul the patent.

    And we have set forth in our brief the various authorities in favor of that proposition and all I would like to do here is to invite the Court’s attention to another case which unfortunately we did not cite which we think is virtually dispositive in this point.

    And that as this Court’s opinion in the first Gypsum case, United States v. United States Gypsum Company in 333 U.S. 364.

    That was a civil antitrust case brought by the Government alleging violations of Section 1 and 2 of the Sherman Act and the claim was an illegal combination in conspiracy to restrain and monopolize, accomplished through various patent licensing practices.

    During the course of the proceedings in the District Court, the defendants conceded that if they didn’t have the protection of the patents, their practices would be illegal.

    But they claim the patents gave them a full defense.

    At this point, the Government move to amend its complaint to add another paragraph alleging that the patents themselves were invalid for a large number of grounds, seven or eight grounds.

    The District Court refused to permit that amendment.

    The District Court thought that allowing such a claim in the suit wouldn’t effect amount to a prohibited attempt by the United States in that case to challenge the patent and to secure its annulment.

    Now, this Court in its decision in the Gypsum case, although recognizing that that issue was not crucial as the way the case came out, nevertheless went out of its way, specifically to reject that ruling, pointing out it would be most unfortunate to leave as a precedent.

    Daniel M. Friedman:

    And I’d like to read to the Court two sentences from its decision on this point which is at page 387, at 333 United States and the Court stated.

    “The United States does not claim that the patents are invalid because they have been employed in violation of the Sherman Act, and that a decree should issue canceling the patents; rather, the Government charges that the defendants have violated the Sherman Act because they granted licenses under patents which in fact were invalid.”

    Now I come particularly emphasize the second sentence.

    “If the Government were to succeed in showing that the patents were in fact invalid, such a finding would not itself result in a judgment for cancellation of the patents.”

    And we think this same reasoning is fully applicable in this case.

    Here, the petitioner is not claiming that the patent is invalid because it was illegally used to monopolize or seeking cancellation of the patent, rather the charge is that there was a violation of the Sherman Act because the conduct was based on a patent that was invalid.

    And just as in the Gypsum case, we think it quite clear here that if the ultimate result in this case is a finding of monopolization based on a finding that the patent was obtained by fraud, such a finding and the words of Gypsum would not itself result in a judgment for cancellation of the patent.

    So we think the stated basis for the decision is plainly untenable.

    Potter Stewart:

    Because there is a difference for what it’s worth, the — in Gypsum, the United States once was the party and that —

    Daniel M. Friedman:

    Was the party.

    That’s correct Mr. Justice —

    Potter Stewart:

    And that would —

    Daniel M. Friedman:

    — but the — the rationale it seems to us is equally applicable because in Gypsum, the Court said that the United States could not bring the suit because the District Court erroneously believe that that was not —

    Potter Stewart:

    Yes.

    Daniel M. Friedman:

    — permitted even to the United States and this Court rejected that —

    Potter Stewart:

    Yes.

    Daniel M. Friedman:

    — and said, “No, this is not an attempt to annul or cancel a patent.”

    Now, in —

    Byron R. White:

    May I ask Mr. Friedman —

    Daniel M. Friedman:

    Yes.

    William J. Brennan, Jr.:

    — before you can issue — would you mind briefly stating what you think will have to be tried if you prevail on the statement of fact.

    Daniel M. Friedman:

    Yes, I’d like —

    William J. Brennan, Jr.:

    Don’t bother now, before you finish.

    Daniel M. Friedman:

    Well, I’ll tell you right now Mr. Justice.

    I think what will have to be shown are the following — one, the allegation of the complaint that the patent was obtained by knowingly misrepresenting to the Patent Office that there was in fact no prior invention more than a year of the date of filing, that’s the first allegation.

    Secondly, they will have to be show not only that they had the patent but that they enforced it against the petitioner in this case.

    No, that’s not merely the possession of the patent but the allegations that they make, that they lost a great deal of business.

    In fact, they were actually excluded from the markets for the (Voice Overlap) —

    Byron R. White:

    Won’t they just come to prove the Section 2 case?

    Daniel M. Friedman:

    Yes.

    Byron R. White:

    Whatever the elements are in the Section 2 case —

    Daniel M. Friedman:

    That’s right, yes.

    Byron R. White:

    — and have to prove it.

    William J. Brennan, Jr.:

    What about relevant market?

    Daniel M. Friedman:

    Well, on the relevant market Mr. Justice — we have an alternative argument.

    The first argument we have is that at least in this kind of a case, the allegations here is sufficient to allow them to go to try, that’s our first argument.

    This was not the basis, relevant market on which the lower court decided the case.

    The complaint charges monopolization — if it felt necessary to define the relevant market in this type of a case, it seems to me that’s a matter that properly can be developed at further pretrial proceedings, possibly in other amendment of the complaint.

    Now that’s our first position.

    If we — I also plan to discuss briefly our argument that we think in this kind of a case, there is no need to define the relevant market.

    And may I say, to be clear on this, when I say this kind of a case, I learned it myself specifically to the situation, where a claim of illegal monopolization rest on the enforcement of a patent procured by fraud.

    Now I’m planning to come to that in a few minutes and to develop the latter point of them —

    Byron R. White:

    Let’s assume relevant market is required, how about the necessity of the pleadings?

    Daniel M. Friedman:

    Well, that — that’s the question Mr. Justice on which really the Government doesn’t take any position whether this pleading is sufficient as a matter of pleading.

    I mean, I think that would — that’s again —

    Byron R. White:

    This issue has never been raised anywhere in the this (Voice Overlap) —

    Daniel M. Friedman:

    This has never been raised, that’s correct.

    And it seems to me that again would be a matter properly to be considered by the trial court in the first instance —

    Byron R. White:

    But you’re suggesting you have an alternative argument which would dispense with this trial, is that it?

    Daniel M. Friedman:

    Well, the alternative argument, we would say that there’s no need for relevant market at all.

    Byron R. White:

    Yes, that’s (Voice Overlap) —

    Daniel M. Friedman:

    But if there is a need for a relevant market, it seems to me that is not a matter that has to be disposed at this point.

    Byron R. White:

    Right.

    Hugo L. Black:

    That would be in all cases of this fact, where there’s a fraud on Patent Office —

    Daniel M. Friedman:

    Well, that’s right.

    Whether claim of illegal monopolization rests on the enforcement of the patent procured by fraud and I — as I will come to develop why we think this is an appropriate rule here.

    (Inaudible)

    Daniel M. Friedman:

    It means, for example, that it had not — did not sufficiently provide any novelty invention — yes, I think that would — wouldn’t make a difference.

    Well, again Mr. Justice, we recognized that if a patent has been obtained in good faith — in good faith, where the patentee has attempted in good faith to get the monopoly which the patent laws provide, that is not the kind — the exercise of that power is not the kind of thing against which the Sherman Act is directed.

    But we’re —

    (Inaudible)

    Daniel M. Friedman:

    Yes, we think it would certainly make a difference.

    Invalid — if I may suggest Mr. Justice, the words “invalidly obtained patent” — I put in the word “knowingly”.

    We think the essential element of this case is the knowing aspect of it, that they intentionally obtain this power by knowingly misrepresenting the facts for the patent.

    That we think is the essence.

    Because in the normal case where someone has a patent, he is merely exercising the power which Congress has given, it means he’s getting a reward for his invention.

    And if it should late to turn out that the rewards for the invention was improperly granted because, let’s say it wasn’t a true invention, in that situation, as long as he was attempting to exercise the power which he, in good faith, had sought to obtain, it seems to me this is fully what is contemplated by the patent laws.

    But we think this is a quite different case.

    This is the unusual case where the claim is that he obtained the power initially improperly.

    Now, this Court in a large number of decisions, has recognized that where a patentee sues for infringement, the alleged infringer is permitted to raise the defense that the patent had been obtained by fraud.

    And those decisions rest basically as we read them.

    On the fact that because a patent does give a natural monopoly, that it gives the absolute right to exclude, is a very strong public interest in making sure that this power is not obtained from the Government through deceptive practice.

    Now, it seems to us the same considerations apply the importance of opening up to the public of permitting the public to be protected against monopolies that were obtained improperly where the alleged illegal procurement of the patent is the affirmative case.

    It doesn’t seem to us that it should make any difference whether it’s offered as a defense to an infringement suit, whether it’s the basis upon which the alleged infringer suit succeeds declaratory relief, or whether as in this case, it’s the basis of a charge under the Sherman Act, because in all situation, the basic policy upon which this rule permitting the attack on fraud in the procurement of a patent rests, it seems to us, would be served in all of these cases.

    Now, with this as a background, I would now liked to come to the more specific question whether what is alleged here is enough to establish a violation of Section 2, that is the charge of monopolization based upon the enforcement of a patent procured by a fraud.

    Monopoly power of course is instated again and again as the power either to raise prices or to exclude competitors.

    As far as the patent is concerned, there’s no question that — at least for the claims covered by the patent, that’s exactly what the patentee has, so that’s what a patent is.

    The patent gives you the right to exclude from the subject matter of the patented invention.

    And in addition, it seems fair to say that when a patentee obtains from the Patent Office, the right to exclude others from practicing this invention, by definition, it has to be something new and novel, some advancement in the — in the art of what he’s doing before, he obviously thinks, he’s getting something a benefit to him.

    Now, we therefore think that if the respondent in this case, Food Machinery and Chemical, does have monopoly power by virtue of the patent, the fact that such power rests on a fraudulently procured patent would be enough to show a violation of Section 2.

    Potter Stewart:

    Per se inherently — inevitably in every case?

    Daniel M. Friedman:

    If he — if I’m just — that passing Mr. Justice, the question of whether there is monopoly power, assuming there were no question that a particular firm had monopoly power in the relevant market, it seems to me if — whenever you could show that that power rest on a patent that was procured by fraud, that would be enough to show illegal monopoly power.

    In other words this is a —

    Potter Stewart:

    Yes.

    Daniel M. Friedman:

    — clear grasping for the power, this is not the thrust upon the alleged monopoly.

    Potter Stewart:

    You first, by definition I — as it shown, the exercise of the monopoly power within the meaning of that — of that (Voice Overlap).

    Daniel M. Friedman:

    Within — where there — which outcome to those — once you have the existence of monopoly power, we don’t think it could seriously be said that that power if it rest on a fraudulent procured patent is illegal.

    So the case really comes down to the question whether here, what has been alleged is enough.

    In other words, is there a necessity in this case of proving in addition to all of these facts the relevant market?

    Now —

    Byron R. White:

    But what if there — are we going to have to decide that aim?

    Daniel M. Friedman:

    No, I don’t think so Mr. Justice.

    As I say, I think — it think it’s enough that the Court can dispose of this case merely saying that whether or not a relevant market has to be proved, is a question that can be disposed within the lower court.

    The reason I’m arguing this point is because the respondent says with great vigor that this suit does not lie because there has been no attempt to just indicate what the relevant market is.

    And that’s the reason I’m arguing.

    As I say, our first argument is that, at least in this kind of a case, there’s enough said forth.

    And the reason for that is, it seems to us again, if a relevant market has to be defined, conceding that not every patent necessarily would give complete power to exclude from what might be the relevant market, at least where someone has obtained a patent and enforced it in the allegation that is done by, that would be in a prima facie at least to show that in this kind of a case, the patent is co-extensive with the relevant market.

    Byron R. White:

    You know, let’s just assume there’s a competing product, as stiff and as good as yours, the only the thing is that it doesn’t infringe, and there’s a patent of device that does this job very well and there’s an unpatented device, the competing device, or another patent device for that matter, two patents of device do this job very well in the relevant market.

    Daniel M. Friedman:

    Well, first, as I say —

    Byron R. White:

    Would you say that the one — that the fellow — the fellow who exercises his right in this market under a fraudulently obtained patent violates the antitrust law?

    Daniel M. Friedman:

    We would think so, Mr. Justice.

    And as I say, if I may, I’d like to come —

    Byron R. White:

    Why would that be?

    Daniel M. Friedman:

    Well, I’d like to — taking you back —

    Byron R. White:

    Let’s assume there’s either — that neither product were patented.

    You wouldn’t think that either one of them violated — would be violating Section 2, would you?

    Daniel M. Friedman:

    No, no.

    Byron R. White:

    And just by telling their product?

    Daniel M. Friedman:

    No, because of the different situation there.

    In the latter hypothetical — in the latter hypothetical, the man has — did not have the absolute power stemming from the patent to exclude some scope of the patented invention.

    Byron R. White:

    Well, that’s all he’s got though.

    But he hasn’t had the power to exclude the market.

    Daniel M. Friedman:

    Well, he may or may not have.

    He may or may not have Mr. Justice.

    Byron R. White:

    Well, what I thought was that — that he didn’t have because of another product that could do just as well.

    Daniel M. Friedman:

    Well, I’ve just say first — first, that that again it seems to me is a matter that should be explored at the trial court.

    But secondly, I’d like to suggest to you why we think that doesn’t really make any difference with this case.

    And we think — we think that basically this inquires a little analysis as to why in the antitrust field, we look to the relevant market, when it necessary and when it isn’t.

    And there are some situations in the antitrust field where we don’t look to the relevant market.

    There are other situations in which we do.

    Daniel M. Friedman:

    Price fixing is a common example of a situation where there has never been any need to define the relevant market, it’s enough to prove an agreement between people to fix prices.

    And once that is established, as long as something more than a de minimis amount of commerce is involved, that’s the end of it.

    In the merger field on the other hand, we always have to define the relevant market and the reason we say, we have to define the relevant market is we have to find out what the effect of the merger is on competition, and the way you find out that is to see where they’re competing.

    You see where they compete by defining the relevant market.

    But I’d like to come back to the price fixing situation for a minute, because I suppose one could conceive of a situation, the particular industry where there are two people out of enlarged number of firms who agree to fix prices.

    Now, as long as something more than de minimis commerce is involved, that would be a violation of the antitrust law.

    Yet, it might well be in a particular industry that the industry was so structured, that the elimination of price competition between these two people would not realistically have any substantial effect on competition in the line of commerce involved.

    And I would like to offer this suggestion for why there seems to be this dichotomy in the antitrust laws, why it is — in some types of cases, we find it necessary to analyze the relevant market and others not.

    And I think the explanation to those has not been articulated in the case.

    It’s basically this — when you have practices with anti-competitive effect, the credible question there is whether there are any compensating factors, any things that might offset the anti-competitive effects, and therefore unbalance, lead to the conclusion that this is not the kind of practice which the Sherman Act condemns.

    And this of course, has been the — in the per se case that this Court has pointed out most noticeably in the Northern Pacific case, that in that type of situation, the certain types of practices have presumed to have such a pernicious effect and then this — as this Court said in Northern Pacific that they are illegal, without a labyrinth inquiry as to the precise harm they may have caused or the business excuse for their use.

    I think this is pointed out very dramatically when we contrast the way in which exclusive dealing agreements and tying clauses are treated under the antitrust laws.

    Tying clauses are generally considered to be one of those practices that have no other effect other than the suppression of competition.

    A market inquiry therefore is not required.

    Those are per se illegal as long as there’s a substantial effect was shown.

    On the other hand, exclusive dealing of contracts may or may not have a desirable effect.

    And therefore, in that situation, we have to go beyond this inquiry and look to the relevant market to see whether in fact they do have a basically bad effect in the market.

    Now, with this as the background, I would like to come to the monopoly situation.

    In a monopoly case, the fact that a particular firm has a stated percentage of the market for a particular product, doesn’t itself tell us whether the possession of that share will or will not harm competition.

    And therefore, in that situation, what we have to do is first to define the relevant market.

    And then, look to that market to see what the effect on competition is to ascertain whether the firm’s share of the particular product where it has, for example, where DuPont had 75% of cellophane, whether that kind of economic power is the kind of power that the antitrust laws condemn.

    Because in that situation, the particular practice — in this case, it’s not a practice I suppose, that the status, the market situation, may or may not be a bad thing.

    But when we come to the case of a patent that is procured by fraud and which is specifically — admittedly gives the power to exclude from the particular item covered by the invention and where the patent is obtained for that very purpose, it seems to us that there can be no question that this is precisely the type of economic misuse of power that the antitrust laws are intended to condemn.

    And it certainly, the enforcement of the patent for that purpose is injurious to competition, where it’s obtained by misleading the Patent Office.

    And we therefore think, in that kind of a case, it would be fully consistent with the decisions of this Court to say that there, there is no need for the elaborate analysis of the market to ascertain what needs and bounds of the relevant market are, that — it’s enough in that situation we think that there is a patent, that it has been procured by fraud in the Patent Office, and that it’s being used to exclude competition.

    Byron R. White:

    Would you — it’s not only a prima facie case then if I would understand the — you would say, but a conclusive case?

    Daniel M. Friedman:

    On this aspect of it, yes.

    Byron R. White:

    Of a — of monopolization?

    Daniel M. Friedman:

    That’s correct.

    Byron R. White:

    You proved that as conclusive?

    Byron R. White:

    There’s no need for — there’s no defense, is there?

    Daniel M. Friedman:

    Well, there’s no defense except the defenses as to whether they have in fact the same patent (Voice Overlap) by fraud and whether they enforced it against.

    Byron R. White:

    Yes —

    Daniel M. Friedman:

    And the damages, of course, yes.

    Hugo L. Black:

    Suppose we didn’t agree with you though, this case have to be affirmed or —

    Daniel M. Friedman:

    No, Mr. Justice.

    If the Court does not agree with us on that, there is still — I think it should go back to develop and — at the District Court level what the relevant market is against —

    Hugo L. Black:

    Although you didn’t allege that other kind of alleged?

    Daniel M. Friedman:

    Well, I think again, this is a question — we don’t take — the Government doesn’t take any position as to whether if relevant market has to be shown whether this complaint sufficiently alleged.

    I think again, this would be a matter for the District Court, the District Court did attempt to decide the case on that basis, and it seems to me in the first instance that the trial court should now be given an opportunity to see whether this complaint is deficient and in further whether an amendment might be appropriate.

    Hugo L. Black:

    Well, assuming that that is irrelevant to the case, why is that — why does that rise above anything except an amendable defense?

    Why should the lawsuit be thrown out of court on that?

    Daniel M. Friedman:

    Well, we don’t think it should Mr. Justice —

    Hugo L. Black:

    So why do we have to decide it here one way or the other?

    Daniel M. Friedman:

    No, I don’t think so.

    I don’t believe, as I suggested earlier, I don’t think the Court has to pass on that.

    Earl Warren:

    Mr. Collen.

    Sheldon O. Collen:

    Mr. Chief Justice, if the Court please.

    I think what is really necessary for the Court to understand why this particular case is here, is for us to review briefly the pleadings because the simple fact of the matter is, and during the course of three pleadings, there isn’t any question — I think the Court will agree that Walker Process Equipment Company is submitting to the Court the sole and simple question of whether the fraudulent procurement in maintenance of a patent is illegal per se.

    That is the only question that they are attempting to submit to this Court.

    It is perfectly clear from their pleadings, it’s perfectly clear from the confession of the parties.

    And the reason they arrived at that question and what their position is based in, is the simple equation that any patent necessarily grants a monopoly or monopolies are illegal under the Sherman Antitrust Act and if you remove the protection of the patent laws from the patent, or go ipso facto mechanically, universally, you are left with an unlawful monopoly.

    That is all they have ever attempted to say in this case, if the Court please.

    Their original pleading was filed in response to plaintiff suit for infringement.

    They defend it on the ground — so they said that the patent was obtained from the Patent Office by misrepresentations and that this constitutes unclean hands.

    And they added, this constitutes a violation of the antitrust laws.

    In their first pleading then, that’s all they said in violation of the antitrust laws.

    It was perfectly clear that in their view, there was a universal exchangeability and interchange of conversion between the defense of unenforceability based on so-called fraudulent procurement in violation of the antitrust laws.

    That’s the most — that’s all that they claim.

    Now subsequently, they’ve got leads to amend because with nothing more than their pleading, I don’t think they would want to proceed very far in the case.

    Sheldon O. Collen:

    With their amended counterclaim, they entered a new dimension to the case.

    They contended that there was some kind of illegal tie-ins involved in the case.

    Then FMC, in connection with the sale of its swing diffuser units were somehow packaging or forcing other equipment for plaintiff’s buyers.

    They did not however in their amended complaint change their views or plead anything different in connection with this equation between fraudulent procurement of the patent in violation of the antitrust laws.

    Once again, in their amended complaint, they simply said after reciting the alleged fraudulent procurement that this constitutes a violation of the antitrust laws.

    They also told us that their point that it constituted a claim for unjust enrichment, it constituted some claim — a claim for unfair competition, and they spelled out in frolics detail, if the Court please, an unintelligible detail what they were trying to accomplish.

    We moved in the District Court to strike their complaint on the grounds that it was not clear, it was not readable under Rule 8, and also for its failure to state a claim in which relief could be granted.

    Now contrary, if the Court please, to what Mr. Merriam has said this morning, Mr. Merriam did not participate in the case at that stage.

    From the very beginning in our first brief in the District Court, we took two positions.

    We took substantially the technical position that the Court of Appeals relied on, and I’ll advert further to that later, but we also took the position, a great link as I’m saying to the Court right now that they are trying to plead an automatic equation between fraudulent procurement of a patent and Sherman Act monopolization.

    So, the original motion to strike in our original brief, we at length pointed out from the very beginning that these people were not pleading a claim of monopolization under Section 2, that the concept of monopolization under Section 2 includes a relevant market, it’s not a question that to some cases we need a relevant market, in some cases we don’t, in any monopolization case under Section 2, the very idea of monopolization means irrelevant market.

    The power to exclude competition or the fix prices in a relevant market is a criteria or at least a basic mode of examination into the ascertainment of whether there is monopolization.

    In that of any counterclaim, despite all of these allegations about antitrust violations, there was no suggestion whether they were pleading of monopolization case, whether they were pleading of Section 1 case out the Sherman Act or whether they were pleading a tie-in case under Section 3 of the Clayton Act or Section 1 of the Sherman Act, all they talked about was antitrust laws.

    And it was for that reason — and besides antitrust laws, of course, they were talking about some kind of additional or common law relief for unjust enrichment.

    It was for that reason that we adopted the two-fold approach if that (Inaudible) for the case.

    The theory, again, as I say that the Court of Appeals finally adopted in which I would advert to, that somehow, what they were trying to do is collaterally eject the validity of the patent and that that would not like.

    And at the same time, that if they were talking about a monopolization case, they were not pleading the case of monopolization.

    Now, I suggest to the Court and I think it is crucial here for purposes of the ultimate termination of this litigation, they haven’t pleaded a monopolization case.

    They don’t intend to plead a monopolization case.

    They’re pleading a per se case.

    They have three chances to make the monopolization case established and under no circumstances is the appropriate for the case to go back to the District Court for determination of what might have been monopolized or what the relevant market might have been.

    That isn’t their case.

    That is not the issue that they are presenting to this Court.

    They’re presenting to the Court — it’s quite apparent from the language of question two presented by Walkers, from the language of the question presented by the Government, that they are only asking for this per se determination.

    And I want to suggest to the Court, as I have this from the very beginning, that’s all they wanted to say.

    That’s all they are saying now.

    They’re talking as even as late as their replied brief, that the relevant market maybe some kind of formality that maybe could be supplied later.

    But they are totally lacking in any appreciation of the relationship between the relevant market as a dimension of monopolization, there cannot be any such thing as monopolization without reference to a relevant market.

    Now, if the Court please in response to our first pleas in the District Court, their response was — and I’m quoting from their District Court brief, “The patent monopoly is a monopoly without considering line of commerce or the like”.

    That’s where they started, that the patent grants monopoly.

    Sheldon O. Collen:

    Now, the District Court stretched the — the amended complaint, because it simply was frolics and unreadable.

    The same thing we had already suggested in our brief that they must — if they are going to plea a monopolization case, plead, and establish relevant market, otherwise they’re not talking about monopolization.

    Maybe they are talking about some kind of unfair competition which however is not available to them.

    Once again, in response to our briefs, that supported our motion to dismiss their second amended counterclaim which is the stricken pleading that is here before the Court, they take the position then and I insist that, if the Court please, they still sustain their position, they take no other position.

    They say a patent is unquestionably monopolistic.

    Although the patent statutes are inferential exemptions, there are limits to this inferential exemption.

    One who obtains a patent which he has no basis whatever than a fraudulent basis or who maintains it in spite of having only a false basis, is beyond those limits.

    And therefore, let it expose to the antitrust laws, and as accordingly adjoin a monopoly in violation of them, and is liable to those damage.

    Then, as their case, if the Court please, they are not pleading a case of monopolization from a sense of monopolization under Sherman Act Section 2.

    They don’t want to, they don’t intend to, they did not tendered such a case to the Court and they have had now three opportunities with two briefs below, indicating to them that if that’s what they wanted to plead, that’s the way they should do it.

    It should not be opened to them, it should — it be opened to the Government to suggest that in the event, the claim that they pleaded could be extended into a claim under Sherman Act Section 2, that they can go back into the District Court to start out, to examine it to the relevant market.

    I’ll continue, if the Court please, tomorrow on that point.