UNITED STATES v. GLAXO GROUP LTD. ET AL.
No. 71-666
SUPREME COURT OF THE UNITED STATES
410 U.S. 52; 93 S. Ct. 861; 35 L. Ed. 2d 104; 1973 U.S.LEXIS 26; 176 U.S.P.Q. (BNA)
289; 1973 Trade Cas. (CCH) P74,323; 1973-1 Trade
Cas. (CCH) P74,323
November 9, 1972, Argued
January 22, 1973, Decided
PRIOR HISTORY:
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
COLUMBIA.
DISPOSITION: 328 F.Supp. 709, reversed; see also 302 F.Supp. 1.
CASE SUMMARY
PROCEDURAL POSTURE: Appellant sought review of judgment by the United States District
Court for the District of Columbia finding that appellees committed per se violations of 15
U.S.C.S. @ 1 in agreements restraining the sale of a drug, but refusing to order mandatory sales
of the drug and reasonable-royalty licensing of the patent. The court found that appellant could
not challenge appellee's patent when it was not relied upon as a defense to the antitrust claims.
OVERVIEW: Appellees were drug companies engaged in the manufacture and sale of an
antibiotic compound. Appellees entered into an agreement pooling their patents on the drug. The
Court found that the district court erred in ruling that appellant could challenge the validity of a
patent in the course of prosecuting an antitrust action only when the patent was relied upon as a
defense. The Court found that this was an unduly narrow view of the controlling cases, because
appellant could dispute the patent's validity due to the fact that he alleged conduct by appellee
patentee that would be illegal under the antitrust laws, absent the patent. The Court found that the
district court should have ruled favorably on appellant's demand for mandatory sales and
compulsory licensing because the patents at issue gave appellees the economic leverage with
which to insist upon and enforce the bulk-sales restrictions imposed on the licensees, and
appellees should have been required to sell the bulk-form of the drug on reasonable and
non-discriminatory terms and to grant patent licenses at reasonable-royalty rates in order to pry
open the market that had been closed by appellees' legal restraints.
OUTCOME: The Court reversed to the extent indicated in its opinion, and found that the district
court should have ruled favorably on appellant's demand for mandatory sales and compulsory
licensing, and that the district court erred in ruling that appellant could challenge the validity of a
patent in the course of prosecuting an antitrust action only when the patent was relied upon as a
defense.
CORE TERMS: patent, griseofulvin, bulk, licensee, antitrust, bulk-form, dosage, dosage-form,
licensing, bulk-sales, effective, mandatory, patentee, microsize, resale, antitrust violation, public
interest, antitrust laws, compulsory, invention, reasonable-royalty, nondiscriminatory,
manufacture, leverage, monopoly, license, deceit, Sherman Act, manufacturing, invalidity
CORE CONCEPTS -
Civil Procedure: Remedies
The framing of decrees should take place in the District rather than in Appellate Courts. District
courts are invested with large discretion to model their judgments to fit the exigencies of the
particular case. The Court has not, however, treated that power as one of discretion, subject only
to reversal for gross abuse, but has recognized an obligation to intervene in this most significant
phase of the case when necessary to assure that the relief will be effective.
Antitrust & Trade Law: Private Actions
Mandatory selling on specified terms and compulsory patent licensing at reasonable charges are
recognized antitrust remedies.
SUMMARY: A British drug manufacturer held an American patent on the dosage form of
griseofulvin, a fungicide, and another British drug manufacturer held an American patent on a
microsize dosage form of griseofulvin. The two manufacturers made a patent pooling agreement
containing certain restrictions on the sale of bulk-form griseofulvin. Similar bulk-sale restrictions
were contained in sublicensing agreements made by the two manufacturers with three American
drug companies. In a civil antitrust action in the United States District Court for the District of
Columbia, the United States Government sought to enjoin enforcement of the bulk-sale
restrictions on the ground that they involved unreasonable restraints of trade, in violation of 1 of
the Sherman Act. Also, the government challenged the validity of the American patents which had
been obtained by the British manufacturers. The District Court held that the bulk-sales restrictions
constituted per se violations of 1 of the Sherman Act, but that since the manufacturers were not
relying on the patents in defense of the government's antitrust claims, the government could not
challenge the validity of the patents (302 F Supp 1). Although the District Court granted the
government's request for injunctive relief against future violations, the District Court denied the
government's request that the manufacturers be ordered (1) to make bulk sales on reasonable and
nondiscriminatory terms and prices to all bona fide applicants, and (2) to grant reasonable-royalty
licenses for the manufacture of griseofulvin (328 F Supp 709).
On direct appeal by the government pursuant to the Expediting Act, the United States Supreme
Court reversed. In an opinion by White, J., expressing the views of six members of the court, it
was held (1) that the government could challenge the validity of the defendants' patents even if the
defendants did not rely upon the patents in defense of their conduct, and (2) that the District
Court should have granted the government's request for orders requiring mandatory bulk sales
and compulsory reasonable-royalty licensing.
Rehnquist, J., joined by Stewart and Blackmun, JJ., dissenting, would affirm the judgment
below on the grounds (1) that the patents challenged by the government bore no relationship
whatever to the defendants' unreasonable restraint of trade, and (2) that the Supreme Court's
factual assumptions in determining the appropriate remedy were completely contrary to the
District Court's findings.
LEXIS HEADNOTES - Classified to U.S. Digest Lawyers' Edition: [***HN1]
right to challenge -- antitrust action by United States --
Headnote:
In a civil antitrust action by the United States Government, the government may challenge the
validity of the defendants' patents even if the defendants do not rely upon the patents in defense of
their conduct, where (1) according to the allegations of the complaint, the defendants had issued
licenses under their patents which unreasonably restrained trade by prohibiting the licensees from
making bulk sales, and had included in a patent pooling agreement a covenant to impose such
restrictions on licensees, and (2) in response to the government's assertion of substantial claims
for relief consisting of orders requiring mandatory bulk sales and compulsory reasonable-royalty
licensing, the defendants have asserted that such relief would deny the defendants an essential
ingredient of their rights under the patent system, and that there is no warrant for such a drastic
forfeiture of their rights.
[***HN2]
jurisdiction -- antitrust actions --
Headnote:
The Federal District Courts have jurisdiction to entertain and decide antitrust suits brought by the
government and to fashion effective relief where a violation is found.
[***HN3]
remedy for patent pooling agreement restrictions -- mandatory bulk sales -- compulsory
reasonable-royalty licensing --
Headnote:
In a civil antitrust action by the United States Government, the government is entitled to relief
consisting of orders requiring that the defendants, British drug manufacturers, make bulk sales of
griseofulvin, a fungicide, on reasonable and nondiscriminatory terms and prices to all bona fide
applicants, and that the defendants grant reasonable- royalty licenses for the manufacture of
griseofulvin, where (1) the defendants' patents involving griseofulvin have given them economic
leverage with which to insist upon and enforce bulk sales restrictions imposed upon their three
American licensees pursuant to the defendants' patent pooling agreement; (2) the patents have
been intimately associated with and have contributed to effectuating conduct which has been held
to be a per se restraint of trade in griseofulvin; (3) the effect of the defendants' refusal to sell in
bulk and of prohibition of bulk sales by the licensees has been that bulk griseofulvin has not been
available to any but the defendants' three licensees, and that these three are the only sources of
dosage-form griseofulvin in the United States; (4) only by requiring the defendants to sell
bulk-form griseofulvin on nondiscriminatory terms to all bona fide applicants will the
dosage-form, wholesale market become competitive; and (5) unless American firms other than the
three licensees are licensed to manufacture griseofulvin, competition in the United States market
will depend entirely upon the defendants' willingness to continue to supply their present licensees
with the bulk form of the drug.
[***HN4]
relief --
Headnote:
In civil antitrust actions, the framing of decrees should take place in the Federal District Courts
rather than in appellate courts, and District Courts are invested with large discretion to model
their judgments to fit the exigencies of the particular case.
[***HN5]
discretion of District Court --
Headnote:
The power of a Federal District Court to model its judgment to fit the exigencies of a particular
antitrust case is not one of discretion, subject only to reversal for gross abuse; rather, the United
States Supreme Court has an obligation to intervene in this most significant phase of the case
when necessary to assure that the relief will be effective.
[***HN6]
relief --
Headnote:
The purpose of relief in an antitrust case is, so far as practicable, to cure the ill effects of the
illegal conduct, and assure the public freedom from its continuance.
SYLLABUS: Appellees, Imperial Chemical Industries Ltd. and Glaxo Group Ltd., British drug
companies engaged in the manufacture and sale of the fungicide griseofulvin, pooled their bulk-
and dosage-form patents and sublicensed certain firms in the United States to practice the patents.
The pooling agreement contained a covenant to restrict bulk sales and resales, and sublicensing
agreements prohibited bulk resales to third parties without the licensors' prior consent. The
United States filed a civil antitrust suit against appellees to restrain alleged violations of @ 1 of
the Sherman Act, and the Government also attacked the validity of the dosage-form patents, and
sought the relief of mandatory, nondiscriminatory bulk-form sales and reasonable-royalty licensing
of the patents. The District Court held that bulk-sales restrictions were per se violations of @ 1
and enjoined their future use, but refused the Government's request to order mandatory,
nondiscriminatory sales of the bulk form of the drug and reasonable-royalty licensing of appellees'
patents as part of the relief. The court also refused to entertain the Government's claim of patent
invalidity, since appellees did not rely on their patents in defense of the antitrust claims. Held:
1. Where patents are directly involved in antitrust violations and the Government presents a
substantial case for relief in the form of restrictions on the patents, the Government may challenge
the validity of the patents regardless of whether the owner relies on the patents in defending the
antitrust action. Pp. 57-60.
2. In order to "pry open to competition" the market closed by the antitrust violations, an order
for mandatory, nondiscriminatory sales to all bona fide applicants is appropriate relief, and where,
as in this case, the manufacturer may choose not to make bulk-form sales, and the licensees are
not bound by the court's order for mandatory sales, further relief in the form of reasonable-royalty
licensing of the patents is also proper. Pp. 60-64.
COUNSEL: Deputy Solicitor General Friedman argued the cause for the United States. With him
on the briefs were Solicitor General Griswold, Assistant Attorney General Kauper, Acting
Assistant Attorney General Comegys, Wm. Terry Bray, Howard E. Shapiro, and Richard H.
Stern.
Henry P. Sailer argued the cause for appellee Glaxo Group Ltd. With him on the brief was
Francis D. Thomas, Jr. Sigmund Timberg argued the cause for appellee Imperial Chemical
Industries, Ltd. With him on the brief were Paul N. Kokulis and Lawrence A. Hymo.
JUDGES: White, J., delivered the opinion of the Court, in which Burger, C. J., and Douglas,
Brennan, Marshall, and Powell, JJ., joined. Rehnquist, J., filed a dissenting opinion in which
Stewart and Blackmun, JJ., joined, post, p. 64.
OPINIONBY: WHITE
OPINION: [*53] [***107] [**863] MR. JUSTICE WHITE delivered the opinion of the Court.
The United States appeals pursuant to @ 2 of the Expediting Act, as amended, 62 Stat. 989, 15
U. S. C. @ 29, from portions of a decision by the United States District Court for the District of
Columbia in a civil antitrust suit. We are asked to decide whether the Government may challenge
the validity of patents involved in illegal restraints of trade, when the defendants do not rely upon
the patents in defense of their conduct, and whether the District Court erred in refusing certain
relief requested by the Government.
I
Appellees, Imperial Chemical Industries Ltd. (ICI) and Glaxo Group Ltd.
(Glaxo), are British drug companies engaged in the manufacture and sale of griseofulvin.
Griseofulvin is an antibiotic compound that may be cut with inert ingredients and administered
[*54] orally in the form of capsules or tablets to humans or animals for the treatment of external
fungus infections. There is no substitute for dosage-form griseofulvin in combating certain
infections. Griseofulvin itself is unpatented and unpatentable. ICI owns various patents on the
dosage form of the drug. n1 Glaxo owns various patents on a method for manufacturing the drug
in bulk form, as well as a patent on the finely ground, "microsize" dosage form of the drug. n2
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n1 Specifically at issue in the present litigation is U.S. Patent No. 2,900,304, issued August 18,
1959. The patent embodies two types of claims -- (1) a method of curing humans or animals of
external fungus diseases by administering "an effective amount of griseofulvin" to them internally
and (2) a capsule, tablet, or pill containing an effective amount of griseofulvin.
n2 Specifically at issue in the present litigation is U.S. Patent No. 3,330,727, issued July 11,
1967. This patent covers the improved (finely ground or "microsize") dosage form of
griseofulvin. This form has proved more effective and more marketable than other dosage forms
of the drug.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [***108] On April 26, 1960,
ICI and Glaxo entered into a formal agreement pooling their griseofulvin patents. At the time of
the execution of the agreement, ICI held patents on the dosage form of the drug, and Glaxo held
bulk-form manufacturing patents. Pursuant to the agreement, ICI acquired the right to
manufacture bulk-form griseofulvin under Glaxo's patents, to sell bulk-form griseofulvin, and to
sublicense under Glaxo's patents. Glaxo was authorized to manufacture dosage-form griseofulvin
and to sublicense under ICI's patents. As part of the agreement, ICI undertook "not to sell and to
use its best endeavors [**864] to prevent its subsidiaries and associates from selling any
griseofulvin in bulk to any independent third party without Glaxo's express consent in writing."
Subsequent to the pooling of the griseofulvin patents, ICI granted a sublicense to American
Home Products [*55] Corp. (AMHO), ICI's exclusive distributor in the United States. ICI agreed
to sell bulk-form griseofulvin to AMHO. AMHO was authorized to process the bulk form into
dosage form and to sell the drug in that form. With respect to bulk sales the agreement stated:
"You [AMHO] will not, without first obtaining our [ICI's] consent, resell, or redeliver in bulk
supplies of griseofulvin." Glaxo had previously entered into similar sublicensing agreements with
two United States companies -- Schering Corp. (Schering) and Johnson & Johnson (J & J). The
agreements contained a covenant on the part of the licensees "not to sell or to permit its Affiliates
to sell any griseofulvin in bulk to any independent third party without Glaxo's express consent in
writing." n3
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n3 Although AMHO, Schering, and J & J could have manufactured bulk-form griseofulvin
under Glaxo's patents, in practice they purchased the bulk form of the drug from ICI and Glaxo
and themselves performed the processes to convert the drug to dosage form.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
On March 4, 1968, the United States filed a civil antitrust suit against ICI and Glaxo, pursuant
to @ 4 of the Sherman Act, 15 U. S. C. @ 4, to restrain alleged violations of @ 1 of the Act, 26
Stat. 209, as amended, 15 U. S. C. @ 1. The Government charged that the restrictions on the sale
and resale of bulk-form griseofulvin, contained in the 1960 ICI-Glaxo agreement and the various
sublicensing agreements, were unreasonable restraints of trade. The Government also challenged
the validity of ICI's dosage-form patent. n4
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n4 See, supra, n. 1. The Government contended that the "method" portion of the patent did not
disclose how to practice the invention in that it failed to specify what is an "effective amount" of
the drug. See 35 U. S. C. @ 112. The Government also argued that ICI's product claims were
invalid because the dosage form that they covered did not specify an "effective amount" of the
drug, did not specify the diseases that could be cured, and claimed a patent monopoly over a
substance long in the public domain. See 35 U. S. C. @@ 100 and 101.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [*56] The District Court, citing
this Court's decision in United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967), held that
the bulk-sales restrictions contained in the ICI-AMHO agreement were per se violations of @ 1 of
the Sherman Act. n5 [***109] 302 F.Supp. 1 (DC 1969). Because ICI had filed an affidavit
disclaiming any desire to rely on its patent in defense of the antitrust claims, the District Court
struck the claims of patent invalidity from the Government's complaint, ruling that the
Government could not challenge ICI's patent when it was not relied upon as a defense to the
antitrust claims. The District Court also denied the Government's motion to amend its complaint
to allege the invalidity of Glaxo's patent on "microsize" griseofulvin. n6
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n5 The case was decided on the basis of various motions concerning the merits and the relief.
Testimony was not received; the facts were developed in affidavits, exhibits, and interrogatories
accompanying the motions.
n6 See n. 2. The Government had sought to challenge the patent on the basis that the patent
purported to monopolize a product long in the public domain, on the basis of prior disclosure, and
on the basis of prior public use. See 35 U. S. C. @@ 100, 101, 102 (a), 102 (b).
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
Subsequently, in separate, unreported orders, the bulk-sales restrictions in the Glaxo-J & J, the
Glaxo-Schering, and the Glaxo-ICI agreements were found to be per se violations of @ 1. The
court enjoined future use of the bulk-sales restrictions, but refused the Government's request to
order mandatory, nondiscriminatory sales of the bulk form of the drug and reasonable-royalty
licensing of the ICI and Glaxo patents as part of the relief. 328 F.Supp. 709 (DC 1971). The
United States took a direct [**865] appeal under the Expediting Act and we noted probable
jurisdiction. 405 U.S. 914. [*57] II
[***HR1] The major issue before us is whether the District Court erred in ruling that the United
States could challenge the validity of a patent in the course of prosecuting an antitrust action only
when the patent is relied on as a defense, which was not the case here. We agree with the United
States that this was an unduly narrow view of the controlling cases.
United States v. Bell Telephone Co., 167 U.S. 224 (1897), acknowledged prior decisions
permitting the United States to sue to set aside a patent for fraud or deceit associated with its
issuance, but held that the federal courts should not entertain suits by the Government "to set
aside a patent for an invention on the mere ground of error of judgment on the part of the patent
officials," at least where the United States "has no proprietary or pecuniary [interest] in the setting
aside of the patent [and] is not seeking to discharge its obligations to the public . . . ." 167 U.S., at
269, 265. Subsequently, United States v. United States Gypsum Co., 333 U.S. 364 (1948),
referred to Bell Telephone as holding that the United States was "without standing to bring a suit
in equity to cancel a patent on the ground of invalidity," id., at 387, but went on to declare that, to
vindicate the public interest in enjoining violations of the Sherman Act, the United States is
entitled to attack the validity of patents relied upon to justify anticompetitive conduct otherwise
violative of the law. The Court noted that, because of the public interest in free competition, it
had repeatedly held that the private licensee-plaintiff in an antitrust suit may attack the validity of
the patent under which he is licensed even though he has agreed not to do so in his license. The
authorities [***110] for this proposition were Sola Electric Co. v. Jefferson Electric [*58] Co.,
317 U.S. 173 (1942); Edward Katzinger Co. v. Chicago Metallic Mfg. Co., 329 U.S. 394 (1947);
and MacGregor v. Westinghouse Electric & Mfg. Co., 329 U.S. 402 (1947). The essence of those
cases is best revealed in Katzinger where the Court held that, although a patent licensee (under
the then-controlling law) was normally foreclosed from questioning the validity of a patent he is
privileged to use, the bar is removed when he alleges conduct by the patentee that would be illegal
under the antitrust laws, absent the patent. The licensee was free to challenge the patent in these
circumstances because the "federal courts must, in the public interest, keep the way open for the
challenge of patents which are utilized for price-fixing . . . ." Id., at 399. Katzinger and Gypsum
were much in the tradition of Pope Mfg. Co. v. Gormully, 144 U.S. 224, 234 (1892): "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 . . . ," a view most
recently echoed in Lear, Inc. v. Adkins, 395 U.S. 653, 670 (1969).
We think that the principle of these cases is sufficient authority for permitting the Government
to raise and litigate the validity of the ICI-Glaxo patents in this antitrust case. According to the
record, appellees had issued licenses under their patents that unreasonably restrained trade by
prohibiting the licensees from selling or reselling bulk-form griseofulvin and had included in the
pooling agreement a covenant to impose such restrictions on licensees. These charges were
sustained, the court concluding that the covenant and the patent license provisions were per se
restraints of trade in the griseofulvin product market.
[**866] The District Court was then faced with the Government's attack on the pertinent
patents as well as its [*59] demand for mandatory sales and reasonable-royalty licensing, the latter
being well-established forms of relief when necessary to an effective remedy, particularly where
patents have provided the leverage for or have contributed to the antitrust violation adjudicated.
See for example, Besser Mfg. Co. v. United States, 343 U.S. 444 (1952); United States v. United
States Gypsum Co., 340 U.S. 76 (1950); International Salt Co. v. United States, 332 U.S. 392
(1947); Hartford-Empire Co. v. United States, 323 U.S. 386 (1945). Appellees opposed
mandatory sales and compulsory licensing, asserting that the Government would "deny defendants
an essential ingredient of their rights under the patent system," and that there was no warrant for
"such a drastic forfeiture of their rights." In this context, where the court would necessarily be
dealing with the future enforceability of the patents, we think it would have been appropriate, if it
appeared that the Government's claims for further relief were substantial, for the court to have
also entertained the Government's challenge to the validity of those patents.
[***HR2] In arriving at this conclusion, we do not recognize unlimited authority [***111] in the
Government to attack a patent by basing an antitrust claim on the simple assertion that the patent
is invalid. Cf. Walker Process Equipment v. Food Machinery & Chemical Corp., 382 U.S. 172
(1965). Nor do we invest the Attorney General with a roving commission to question the validity
of any patent lurking in the background of an antitrust case. But the district courts have
jurisdiction to entertain and decide antitrust suits brought by the Government and, where a
violation is found, to fashion effective relief. This often involves a substantial question as to
whether it is necessary to limit the rights normally vested in the owners of patents, which in itself
can be a complex [*60] and difficult issue. The litigation would usually proceed on the
assumption that valid patents are involved, but if this basic assumption is itself challenged, we
perceive no good reason, either in terms of the patent system or of judicial administration, for
refusing to hear and decide it.
The District Court, therefore, erred in striking the allegations of the Government's complaint
dealing with the patent validity issue and in refusing to permit the Government to amend its
complaint with respect to this issue. On remand, the District Court should consider the validity of
the ICI dosage-form patent and the Glaxo microsize patent.
III
[***HR3] The question remains whether the Government's case for additional relief was sufficient
to provide the appropriate predicate for a consideration of its challenge to the validity of these
patents. For this purpose, as we have said, its case need not be conclusive, but only substantial
enough to warrant the court's undertaking what could be a large inquiry, one which could easily
obviate other questions of remedy if the patent is found invalid and which, if the patent is not
invalidated, would lend substance to a defendant's claim that a valid patent should not be limited,
absent the necessity to provide effective relief for an antitrust violation to which the patent has
contributed. Here, we think not only that the United States presented a substantial case for
additional relief, but that it was sufficiently convincing that the District Court, wholly aside from
the question of patent validity, should have ruled favorably on the demand for mandatory sales
and compulsory licensing.
In the first place, it is clear from the evidence that the ICI dosage-form patent, along with other
ICI and Glaxo patents, gave the appellees the economic leverage with which to insist upon and
enforce the bulk-sales [*61] restrictions imposed on the [**867] licensees. n7 Glaxo apparently
[***112]considered the bulk-sales restriction to be a prerequisite to the granting of a sublicense,
for it rejected a draft of the ICI-AMHO agreement because, among other things, it would have
permitted AMHO to sell griseofulvin in bulk form. There are indications, also, that Glaxo refused
a sublicense to others than Schering and J & J because of fears that the companies would sell in
bulk form or pressure Glaxo to allow such sales. The [*62] source of the patent-pooling
agreement pursuant to which such licenses were permitted and which contained the bulk-sales
restriction was simple: Glaxo needed the ICI dosage-form patent to assure its licensees the right
to use the patent and sell in dosage form. Pooling permitted ICI to engage in bulk manufacture,
and, in exchange, ICI imposed the bulk-sales restrictions upon its licensees. There can be little
question that the patents involved here were intimately associated with and contributed to
effectuating the conduct that the District Court held to be a per se restraint of trade in
griseofulvin.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n7 The Government argued in the District Court:
"We submit that [United States v.] Gypsum [333 U.S. 364 (1948)] should be understood more
broadly to support challenge to any patent used by antitrust defendants in furtherance of their
illegal program. The importance of the Imperial patent to the defendants' scheme to violate the
antitrust laws is plain. It was, according to ICI's contentions, the reason for the patent pool
agreement in the first place; Glaxo's grant of rights to ICI was paid for with the Imperial patent.
Without the Imperial patent the defendants could not maintain their monopoly in the United
States over the drug, for then anyone who could secure bulk form griseofulvin could make it up
into pills and sell them without a patent to stop him; bulk form griseofulvin is, as ICI points out,
unpatented. The Imperial patent thus bolsters the effectiveness of the illegal restraint on
alienation ICI imposes on the resale of bulk form griseofulvin: if a small drug company somehow
manages to get the unpatented bulk form drug despite ICI's restraint on alienation designed to
prevent it or anyone else from doing so, the defendants may still suppress the manufacture of the
drug by threat of patent infringement suit. In this context, vindication of the public interest in
competition in unpatentable goods is doubly important -- for there is a double impediment to
commerce -- the patent and the conspiracy."
The Government, throughout its brief in this Court, emphasizes the importance of the patents to
the antitrust violation.
"In cases like this, the patents involved generally are of major importance in furthering the
allegedly unlawful patent licensing practices; they give the defendants the power which enables
them to impose the restraints of trade. That is the situation here. The patents were essential to
the appellees' scheme to violate the antitrust laws."
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - Secondly, we think that ICI and
Glaxo should have been required to sell bulk-form griseofulvin on reasonable and
nondiscriminatory terms and to grant patent licenses at reasonable-royalty rates to all bona fide
applicants in order to "pry open to competition" the griseofulvin market that "has been closed by
defendants' illegal restraints." International Salt Co., 332 U.S., at 401.
The United States griseofulvin market consists of three wholesalers, all licensees of appellees,
that account for nearly 100% of United States sales totaling approximately eight million dollars.
Glaxo and ICI have never sold in bulk to others than the licensees and have prohibited bulk sales
and resales by the licensees. In practice, the licensees have not manufactured griseofulvin under
the bulk-form patents, preferring instead to purchase in bulk form from ICI and Glaxo. The
licensees sell the drug in dosage and microsize form to retail outlets at virtually identical prices.
The effect of appellees' refusal to sell in bulk and prohibition of such sales by the licensees has
been that bulk griseofulvin has not been available to any but appellees' three licensees and that
these three are the only sources of dosage-form griseofulvin in the United States.
There is little reason to think that the appellees or their licensees, now that the bulk-sales
restrictions have been declared illegal, will begin selling in bulk. It is in [*63] their economic
self-interest to [**868] maintain control of [***113] the bulk form of the drug in order to keep
the dosage-form, wholesale market competition-free. Bulk sales would create new competition
among wholesalers, by enabling other companies to convert the bulk drug into dosage and
microsize forms and sell to retail outlets, and would presumably lead to price reductions as the
result of normal competitive forces. There is, in fact, substantial evidence in the record to the
effect that other drug companies would not only have entered the market, had they been able to
make bulk purchases, but also would have charged substantially lower wholesale prices for the
dosage and microsize forms of the drug. Only by requiring the appellees to sell bulk-form
griseofulvin on nondiscriminatory terms to all bona fide applicants will the dosage-form,
wholesale market become competitive.
Relief in the form of compulsory sales may not, however, alone insure a competitive market.
Glaxo and ICI could choose to discontinue bulk-form manufacturing or the sale of griseofulvin in
bulk form. The patent licensees might then begin to practice the bulk-form manufacturing patents
pursuant to the patent licenses to fill their needs for the bulk drug. The licensees, of course, are
not parties to this action, and a mandatory-sales order would not affect them. They would not be
required to make the economically less advantageous bulk sales. The bulk form of the drug
would be controlled by the licensees, and the appellees, because they would be required under the
Government's proposed relief to sell to all applicants only so long as they sell to any United States
purchasers, could easily avoid the mandatory-sales requirement. Unless other American firms are
licensed to manufacture griseofulvin, competition in the United States market will depend entirely
upon appellees' willingness to continue to supply their present licensees with the bulk form of the
drug.
[*64]
[***HR4] [***HR5] [***HR6] This Court has repeatedly recognized that "the framing of
decrees should take place in the District rather than in Appellate Courts" and has generally
followed the principle that district courts "are invested with large discretion to model their
judgments to fit the exigencies of the particular case." International Salt Co., supra, at 400-401;
accord, Ford Motor Co. v. United States, 405 U.S. 562, 573 (1972). The Court has not, however,
treated that power as one of discretion, subject only to reversal for gross abuse, but has
recognized "an obligation to intervene in this most significant phase of the case" when necessary
to assure that the relief will be effective. United States v. United States Gypsum Co., 340 U.S., at
89. Accordingly, we have ordered the affirmative relief that the District Court refused to
implement. See, e. g., United States v. United States Gypsum Co. The purpose of relief in an
antitrust case is "so far as practicable, [to] cure the ill effects of the illegal conduct, and assure the
public freedom from its continuance." Id., at 88. Mandatory selling on specified terms and
compulsory patent licensing at reasonable charges are recognized antitrust remedies. See, e. g.,
Besser Mfg. Co. v. United States, 343 U.S. 444 (1952); International Salt [***114] Co. v. United
States, 332 U.S. 392 (1947); Hartford- Empire Co. v. United States, 323 U.S. 386 (1945). The
District Court should have ordered those remedies in this case.
To the extent indicated in this opinion, the judgment of the District Court is reversed.
So ordered.
DISSENTBY: REHNQUIST
DISSENT: [***114contd]
[EDITOR'S NOTE: The page numbers of this document may appear to be out of sequence;
however, this pagination accurately reflects the pagination of the original published document.]
MR. JUSTICE REHNQUIST, with whom MR. JUSTICE STEWART and MR. JUSTICE
BLACKMUN concur, dissenting.
The Court has undertaken to substitute its judgment for that of Congress in the initiation of
novel procedures for the [**869] determination of patent validity, and in so doing [*65] has
blandly disregarded the procedural history of this case.
I
There is neither statutory nor case authority for the existence of a general right of either private
individuals or the Government to collaterally challenge the validity of issued patents. In the Patent
Act of 1790, Congress provided that private citizens could, upon motion alleging fraudulent
procurement, prompt a district court to issue to a patentee an order to show cause why his letters
patent should not be repealed. n1 A substantially identical provision was carried over in the Patent
Act of 1793. n2 But the Patent Act of 1836 contained no provision for such individual actions
although it increased the number of statutory defenses in infringement actions. n3 The effect of
this omission was determined by Mowry v. Whitney, 14 Wall. 434 (1872), to be the preclusion of
private actions to cancel patents, even when fraudulently procured.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n1 1 Stat. 109. For an excellent review of the history briefly summarized here, see Cullen &
Vickers, Fraud in the Procurement of a Patent, 29 Geo. Wash. L. Rev. 110 (1960).
n2 1 Stat. 318.
n3 5 Stat. 117.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
As part of the rationale in Mowry, the Court reasoned that the equitable suit for cancellation of
a patent because it was fraudulently procured was a substitute for the writ of scire facias and,
accordingly, it should have the same limitations. In dictum, the Court stated: "The fraud, if one
exists, has been practiced on the government, and as the party injured, it is the appropriate party
to assert the remedy or seek relief." Id., at 441. When the United States later sued to set aside
two patents issued to Alexander Graham Bell subsequent to several purported [*66] acts of fraud
by him on the Patent Office, this Court relied heavily on the dictum in Mowry, supra, in
recognizing the right of the Federal Government to sue for the cancellation of letters patent
obtained by fraud:
"That the government, authorized both by the Constitution and the statutes to bring suits at law
and in equity, should find it to be its duty to correct this evil, to recall these patents, to get a
remedy for this fraud, is so clear that it needs no argument . . . ." United States v. Bell Telephone
Co., 128 U.S. 315, 370 (1888) (Bell I).[***115] The Government asserts that the breadth of this
holding was established in the dictum in United States v. Bell Telephone Co., 159 U.S. 548
(1895) (Bell II), wherein the Court upheld its appellate jurisdiction in such patent cancellation
cases. There, it was stated:
"In United States v. Telephone Company, [128 U.S. 315], it was decided that where a patent
for a grant of any kind issued by the United States has been obtained by fraud, by mistake or by
accident, a suit by the United States against the patentee is the proper remedy for relief, and that
in this country, where there is no kingly prerogative but where patents for land and inventions are
issued by the authority of the government, and by officers appointed for that purpose who may
have been imposed upon by fraud or deceit, or may have erred as to their power, or made
mistakes in the instrument itself, the appropriate remedy is by proceedings by the United States
against the patentee." Id., at 555.
But in United States v. Bell Telephone Co., 167 U.S. 224 (1897) (Bell III), the Court
characterized the above-quoted language as a "general statement" of the [**870]power [*67] of
the Government to maintain a suit and, again in dictum, limited its effect, saying:
"But while there was thus rightfully affirmed the power of the Government to proceed by suit in
equity against one who had wrongfully obtained a patent for land or for an invention, there was
no attempt to define the character of the fraud, or deceit or mistake, or the extent of the error as
to power which must be established before a decree could be entered cancelling the patent. It was
not affirmed that proof of any fraud, or deceit, or the existence of any error on the part of the
officers as to the extent of their power, or that any mistake in the instrument was sufficient to
justify a decree of cancellation. Least of all was it intended to be affirmed that 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. . . ." Id., at 269.
The plain import of the Bell cases is that the authority of the Government to bring an
independent action to cancel a patent is confined to the traditional equitable grounds of fraud,
mistake, and deceit. The Government makes two arguments to support its position that it should
not be as limited here. It contends that since this is an antitrust action, its right to attack the
validity of the patent is established by the rationale of United States v. United States Gypsum Co.,
333 U.S. 364 (1948), and is therefore not subject to the limitations of Bell III. Alternatively, it
argues that Bell III has been so undercut [*68] by subsequent decisions, including Gypsum, that it
should no longer be followed.
In Gypsum Co., supra, the Court stated in "deliberate dicta" that the [***116]Government may
challenge the validity of a patent which has been asserted by an antitrust defendant to be a defense
to the Government's claim of antitrust violations. It reasoned that in a suit to vindicate the public
interest by enjoining violations of the Sherman Act, the United States should have the
opportunity, similar to that afforded licensees in an action for royalties, to show that an asserted
shield of patent-ability does not exist. Id ., at 386-388.
The Bell cases enunciate the range of the Government's authority, quite independent of any
other litigation it may have with a patentee, to attack a governmental grant from the Patent Office
obtained by the sort of fraud or mistake there described. The Gypsum doctrine, on the other
hand, sprang from the right of the Government as a civil plaintiff under the antitrust laws to assert
the invalidity of a patent grant set up as a defense to its civil complaint. Since a private licensee
may attack the validity of a patent that is made the basis of an action against him for royalties, the
Government should, equally, have the right to attack a patent that is set up as a defense by the
patentee in the Government's action.
The Government's claim here essentially falls between these two limited grants of authority. A
claim of lack of patentability, without more, is not within the Government's authority qua
government to set aside a patent for fraud or mistake. And since the decision of the merits of the
Government's claim of antitrust violation against these appellees in no way required the court to
determine the validity of their patents, the reasoning of Gypsum is not applicable. The
Government may, therefore, prevail only if we are to blur the distinction between [*69] these
separate grants of authority, and extend such authority to circumstances that are within the
rationale of neither. [**871]Certainly, it is true, as the Court states, that there is a public interest
favoring the judicial testing of patent validity and the invalidation of specious patents. See, e. g.,
Blonder-Tongue v. University Foundation, 402 U.S. 313, 343-344 (1971); Lear, Inc. v. Adkins,
395 U.S. 653, 657, 664 (1969). For when a patent is invalid, "the public parts with the monopoly
grant for no return, the public has been imposed upon and the patent clause subverted." United
States v. Singer Mfg. Co., 374 U.S. 174, 197, 199-200 (1963) (WHITE, J., concurring).
Significant recognition is given to this interest by both the Bell and Gypsum doctrines.
Additional authority resides in the Government to obtain judicially decreed restrictions on patent
monopoly in appropriate cases where the defendant's antitrust violations have consisted, at least in
part, of patent misuse. International Salt Co. v. United States, 332 U.S. 392 (1947);
Hartford-Empire Co. v. United States, 323 U.S. 386 (1945); Morton Salt Co. v. G. S. Suppiger
Co., 314 U.S. 488 (1942). But the sort of roving commission that the majority now authorizes
whereby the Government may request a court to invalidate any patent owned by an antitrust
defendant that in any way related to the factual background of the claimed antitrust violation
cannot be regarded as a reasonably necessary extension of any of these principles. [***117] It is,
therefore, more properly the creature of statute than of judicial innovation.
II
Although the Court purports to limit its holding to avoid giving the Government such a roving
commission, the range of the new authority is pointed up by the facts in this case. [*70] The
Government submitted its case to the District Court in three motions for partial summary
judgment on the very narrow issue that the vertical restrictions on the resale of bulk-form
griseofulvin constituted per se violations of the antitrust laws under the Schwinn doctrine. n4
United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967). Although common bulk-form
griseofulvin is the subject of a British manufacturing patent owned by Glaxo, it is neither patented
nor patentable in the United States.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n4 The majority inaccurately states that the lower court sustained the allegations in the
complaint that appellees had unreasonably restrained trade by prohibiting the licensee from selling
or reselling bulk-form griseofulvin. In fact, the District Court only found that the restraint on
reselling bulk-form griseofulvin constituted the per se antitrust violations found.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
The two patents that this Court is now authorizing the Government to challenge bear no
relationship whatsoever to the illegal restraint found. The ICI patent relates only to the dosage
form of the drug. The majority states that "it is clear from the evidence that the ICI dosage-form
patent . . . gave the appellees the economic leverage with which to insist upon and enforce the
bulk-sales restrictions imposed on the licensees." Ante, at 60-61. But no such evidence was
submitted in the Government's statement of undisputed facts that accompanied its motions for
partial summary judgment on the restraint-of-alienation issue. And no such fact was included in
the District Court's findings of undisputed or ultimate facts. The District Court found precisely
the opposite:
"Plaintiff has not shown on this record that defendants' current licensing practices are related to
the adjudged antitrust violation nor are they methods to circumvent the prohibition of restraints
on resale. . . ." 328 F.Supp. 709, 713. [*71]
Since the Court's factual assumption as to economic leverage is completely contrary to the
finding of the District [**872] Court, presumably the Court without saying so is holding that
finding to be clearly erroneous. Yet the only support for such a holding, to which the Court
refers, is an unverified statement contained in the Government's argument to the District Court on
this issue. While the Government has an impressive batting average in this Court as an antitrust
litigant, it has not heretofore had the benefit of having unverified assertions of its counsel treated
as being of sufficient evidentiary weight to upset a considered factual finding of the District Court
in which that argument was made. Nothing in the antitrust laws or in the Federal Rules of Civil
Procedure exempts the Government from having to make its case in the trial court in the same
manner as any other litigant. The Court's conclusion that there "can be little question that the
patents involved here were intimately associated with and contributed to effectuating the conduct
that the District Court held to [***118] be a per se restraint of trade in griseofulvin," ante , at 62,
is thus reached only by a substantial departure from the settled usages of appellate review.
Similarly, the other patent which the Government may now have declared invalid was not even
granted until 1967, and it, too, relates to the dosage form of the drug. Since the restraints on
alienation were imposed in the early 1960's, there cannot be a plausible contention that it in any
way provided "economic leverage" for the antitrust violations. And there was no other proof of
its relationship to the bulk-form market and the antitrust violations. n5 Thus, the scope of the new
authority extends [*72] to any patent that happens to be present in a patent-licensing agreement
that contains a restraint on alienation in a different market, regardless of its relationship to such
restraint.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n5 This total lack of proof of any relationship also defeats for me the granting of compulsory
licensing of the United States patents. Compulsory licensing is a recognized remedy in patent
misuse cases, see, e. g., International Salt Co. v. United States, 332 U.S. 392 (1947),
Hartford-Empire Co . v. United States, 323 U.S. 386 (1945), but here the District Court
specifically found there was no patent misuse or other abuse of patent rights.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
Since there is no congressional authorization for the challenge by the Government to the validity
vel non of patents without regard to the relationship to antitrust violations, and since there was no
proved relationship between these violations and the patents in question, I would affirm the
judgment and orders of the District Court. I therefore dissent.