Mannington Mills, Inc. v. Congoleum Corporation , 595 F.2d 1287 ( 1979 )

ADAMS, Circuit Judge,

concurring.

I join in Parts II and IV of the majority opinion, which hold, respectively, that the act of state doctrine does not preclude adjudication of Mannington’s antitrust claim and that the treaties of 1883 and 1910 do not provide Mannington a private right of action. The approach I take to Manning-ton’s antitrust claim diverges substantially, however, from that taken by the majority and I therefore write separately on that matter.

My differences with the majority regarding Mannington’s basic claim are threefold. First, I believe that the rationale of Walker Process is applicable to the fraudulent procurement of foreign patents and that therefore Mannington’s complaint has set forth a claim upon which relief can be granted. Second, I do not agree that a court majrconclude that it is invested with subject-matter jurisdiction under the Sherman Act but may nonetheless abstain from exercising such jurisdiction in deference to consid-^ erations of international comity; rather, it seems that those considerations are properly to be weighed at the outset when the court determines whether jurisdiction vel non exists, or in fashioning the decree. Third, it appears evident that notwithstanding the foreign elements involved, jurisdiction exists in the present case, and that possible repercussions abroad should be examined by the court when and if it formulates a remedy.

Apart from my disagreement on specific points, it appears that the majority is influenced to some extent by Congoleum’s contention that this claim is really a conglomeration of twenty-six distinct, foreign patent fraud suits and that therefore Manning-ton should be relegated to the courts of the various foreign countries for vindication of its rights. Admittedly, Mannington’s complaint presents a complex and novel problem regarding the proper accommodation between American antitrust and foreign patent laws as they relate to the fraudulent procurement of foreign patents. Conceivably Mannington could have sued in the courts of each country to invalidate Congoleum’s patents, but it chose not to do so. Mannington does not denominate this lawsuit as one for patent fraud, nor does it seek to have any of the foreign patents declared invalid. Instead, its claim is grounded on an alleged infraction of § 2 of the Sherman Act, and it must therefore be treated as such.

Accordingly, Mannington’s complaint should be analyzed, as I view it, by engaging in a dual inquiry into first, whether the challenged conduct affects “commerce . with foreign nations” so as to be within the jurisdictional scope of the Sherman Act, and second, whether there is a monopolization or attempted monopolization of trade or commerce so as to be violative of the Act. Although these are separate questions, courts have generally recognized, albeit in other contexts, that a final determination as to the existence of subject-matter jurisdiction must often await some clarification of the substantive offense.¹ This interrelationship between the jurisdictional and substantive issues seems to be borne out in the present case, where an understanding of the substantive offense sheds light on whether jurisdiction exists.

In essence, Mannington alleges that Congoleum set out to monopolize the foreign trade relating to chemically embossed vinyl floor covering by fraudulently securing patents in twenty-six foreign countries, thereby giving Congoleum the power to prevent American competitors from shipping such material to purchasers in those countries. That Mannington’s allegation states a claim under § 2 of the Sherman Act is, I believe, a necessary inference from Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965). There, the Supreme Court addressed one facet of the tension that exists between the Sherman Act, which outlaws monopolies, and United States patent law, which creates “an exception to the general rule against monopolies and to the right to access to a free and open market.” ² Seeking to reconcile the differing policies of the patent- and antitrust laws, the Court held that a patentee is stripped of its exemption from the antitrust laws when it obtains its patent by knowingly and willfully misrepresenting facts to the patent office. As explained by Justice Harlan in his concurring opinion,

To hold, as we do, that private suits may be instituted under § 4 of the Clayton Act to recover damages for Sherman Act monopolization knowingly practiced under the guise of a patent procured by deliberate fraud, cannot well be thought to impinge upon the policy of the patent laws to encourage inventions and their disclosure. Hence, as to this class of improper patent monopolies, antitrust remedies should be allowed room for full play.³

Thus, the Supreme Court has declared that the fraudulent procurement of a patent may properly be viewed from the vantage point of antitrust regulation as well as from the perspective of possible patent invalidity, and that monopolistic conduct is not sheltered from the purview of the antitrust laws merely because it involves the fraudulent procurement of patent rights. This underlying rationale of Walker Process appears to be just as applicable to monopolization through the fraudulent acquisition of foreign patents as it is to monopolization through the fraudulent acquisition of United States patents. And, in the words of Justice Harlan,, “as to this class of improper patent monopolies, antitrust remedies should be allowed room for full play.”⁴

With this understanding of the substantive offense charged, we may now turn to the question whether there is a monopolization of “trade or commerce . . . with-foreign nations” so as to invest the federal courts with subject-matter jurisdiction. Although the test for subject-matter jurisdiction has traditionally been framed in terms of whether there is an actual or intended effect upon foreign commerce,⁵ it has also been recognized that “anything that affects the external trade and commerce of the United States also affects the trade and commerce of other nations, and may have far greater consequences for others than for the United States.”⁶ Thus, Judge Learned Hand, when first formulating the “effects” test, observed:

[W]e are not to read general words, such as those in this Act, without regard to the limitations customarily observed by nations upon the exercise of their powers; limitations which generally correspond to those fixed by the “Conflict of Laws.” We should not impute to Congress an intent to punish all whom its courts can catch, for conduct which has no consequence within the United States.⁷

A “jurisdictional rule of reason,”⁸ incorporating concepts from conflicts of laws, has therefore emerged, though admittedly this approach has not always been given explicit recognition in the cases. The appropriate approach has been articulated most precisely in Timberlane Lumber Co. v. Bank of America, N. T. & S. A., 549 F.2d 597 (9th Cir. 1972):

A tripartite analysis seems to be indicated. As acknowledged above, the antitrust laws require in the first instance that there be some effect — actual or intended — on American foreign commerce before the federal courts may legitimately exercise subject matter jurisdiction under those statutes. Second, a greater showing of burden or restraint may be necessary to demonstrate that the effect is sufficiently large to present a cognizable injury to the plaintiffs and, therefore, a civil violation of antitrust laws. Occidental Petroleum, 331 F.Supp. at 102-03; Beausang, The Extraterritorial Jurisdiction of the Sherman Act, 70 Dick.L.Rev. 187, 191 (1966). Third, there is the additional question which is unique to the international setting of whether the interests of, and links to, the United States — including the magnitude of the effect on American foreign commerce — • are sufficiently strong, vis-a-vis those of other nations, to justify an assertion of extraterritorial authority.⁹

The third leg of the jurisdictional test reflects, of course, the principle expressed in the Restatement (Second) of Foreign Relations Law of the United States § 40:

Where two states have jurisdiction to prescribe and enforce rules of law and the rules they may prescribe require inconsistent conduct upon the part of a person, each state is required by international law to consider, in good faith, moderating the exercise of its enforcement jurisdiction, in the light of [various factors] .

It is important to note, however, that this concern for international comity does not require that the Sherman Act, or any other statute, not be enforced extraterritorially whenever a party’s conduct is also subject to regulation by a foreign government. It is only when foreign law requires conduct inconsistent with that mandated by the Sherman Act that problems of international comity become significant. And even in such circumstances, it is recognized that extraterritorial jurisdiction may be asserted if the relevant factors, some of which are enumerated in the majority opinion, weigh in favor of the exercise of jurisdiction.

Relating this jurisdictional test to the present case, it is manifest that jurisdiction exists because there is no indication that Congoleum was conforming to a rule of conduct prescribed by foreign law when it allegedly undertook a scheme to monopolize trade with purchasers in twenty-six foreign nations by fraudulently procuring patents in those nations. Nor has it been suggested that Congoleum was compelled by foreign law to make materially false representations in connection with its patent applications. The dictate of the Sherman Act that Congoleum refrain from monopolizing foreign commerce is thus not at variance in this regard with the commands of any foreign nation.¹⁰ In addition, Congoleum is an American company and is alleged to have masterminded and directed its monopolization scheme from its headquarters in Kearney, New Jersey, with the intention of affecting its American competitors’ export markets. Given these alleged facts, there appears to be no reason why Congoleum should not be held accountable in the courts of the United States for monopolizing trade with foreign nations.

Problems may, of course, arise regarding the formulation of relief, but they do not appear to constitute a threshold jurisdictional barrier. Instead, they are matters that can be dealt with, if need be, at a subsequent stage of the litigation. Indeed, it would appear that there would not be any interference with the policies of foreign nations if relief were limited to treble damages, and the public interest in enforcing the antitrust laws, as well as the private interest of Mannington in obtaining a remedy, may be satisfied in large measure through such an award.

Injunctive relief may also be utilized effectively if the district court deems such a remedy to be appropriate. Where, as here, the district court has personal jurisdiction over the defendant, there might well be no problem in ensuring compliance with its order, whether it prohibits Congoleum from prosecuting infringement suits or requires the licensing of competitors. Moreover, it is improbable that such an order would place Congoleum in the position of being forced to perform an act that is illegal in foreign countries, since patent rights primarily benefit the patent holder rather than the foreign government. At most, the omission to prosecute patent infringers or the unauthorized licensing of others may subject Congoleum to loss of its patent right, which in any event may well be invalid under foreign law because of its fraudulent procurement.

Thus, it is likely that the policies of most foreign nations will not be adversely affected by granting injunctive relief to Mannington. And if, for some reason, the patent laws and policies of one or two countries would be seriously affected — a proposition that incidentally is nowhere suggested in the record — the court can take these specific circumstances into account when fashioning its remedy, as other courts have done in the past.¹¹

In sum, then, I would conclude that subject-matter jurisdiction exists over Mannington’s antitrust cause of action and that Mannington has stated a claim upon which relief can be granted. Accordingly, I would remand the case to the district court for proceedings on the merits, at which time Mannington would be obligated to establish, as required under Walker Process, both that Congoleum procured the foreign patents through knowing and willful fraud and that such conduct constituted monopolization of a relevant market of the foreign trade of the United States.

1 . See, e. g., Mortensen v. First Federal Savings and Loan Association, 549 F.2d 884, 890-98 (3d Cir. 1977) (dismissal of suit charging violation § 1 of the Sherman Act for want of subject-matter jurisdiction was held to be premature because same facts are relevant for ascertaining jurisdiction as well as the substantive offense). See also Ongman, “Be No Longer a Chaos”: Constructing a Normative Theory of the Sherman Act’s Extraterritorial Jurisdictional Scope, 71 Nw.U.L.Rev. 733, 733-735 (1977).

2 . Walker Process, supra, 382 U.S. at 177, 86 S.Ct. 347, quoting Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 816, 65 S.Ct. 993, 89 L.Ed. 1381 (1945).

3 . 382 U.S. at 179-80, 86 S.Ct. at 351. (emphasis added).

4 . Id. Concededly, it may be that unlike fraudulently procured American patents, a number of foreign patents will remain valid under foreign law notwithstanding their fraudulent procurement. But that does not appear relevant to the question whether the holder of such a foreign patent has monopolized trade in violation of the Sherman Act. However, as discussed in the text infra, the continued validity of a foreign patent may have some bearing on the formulation of an antitrust remedy.

The majority opinion appears to sidestep the question whether Walker Process applies to the fraudulent procurement of a foreign patent, but cites one commentator who suggests that Walker Process should be limited to situations involving United States patents. Supra at pp. 1295-1296 & n. 5. The reason advanced for such a limitation is that American patents are unique in that it is very important to determine at the outset whether an American patent is valid, because we do not police profits or require licensing, thereby making it necessary to have “additional engraftings on the elements of validity,” including “the doctrine that fraudulently obtaining a patent is an antitrust violation.” Such an “engrafting” is unnecessary, it is asserted, with respect to foreign patents. It would seem, however, that this argument is flawed in that it subordinates the Sherman Act to patent law policies; it implies that Walker Process was a special enlargement of the antitrust laws designed to deal with the problem of identifying invalid patents, instead of recognizing that Walker Process merely removed the limited patent exception to the antitrust laws in those circumstances where a patent has been obtained by deliberate fraud.

5 . See generally Timberlane Lumber Co. v. Bank of America, N. T. & S. A., 549 F.2d 597, 609-12 (9th Cir. 1976); Kintner & Griffin, Jurisdiction Over Foreign Commerce Under the Sherman Antitrust Act, 18 B.C.Ind. & Comm.L.Rev. 199 (1977).

6 . Timberlane, supra, 549 F.2d at 611, quoting Katzenbach, Conñicts on an Unruly Horse, 65 Yale L.J. 1087, 1150 (1956).

7 . United States v. Aluminum Co. of America, 148 F.2d 416, 443 (2d Cir. 1945).

8 . See K. Brewster, Antitrust and American Business Abroad 446 (1958).

9 . 549 F.2d at 613. See also Pacific Seafarers, Inc. v. Pacific Far East Line, Inc., 131 U.S.App. D.C. 226, 236-37, 404 F.2d 804, 814-15 (1968), cert. denied, 393 U.S. 1093, 89 S.Ct. 872, 21 L.Ed.2d 784 (1969). The majority apparently is of the view that the existence of jurisdiction is to be determined solely under an “effects” standard, but that a court may then decline to exercise jurisdiction because of considerations of international comity. As I understand it, however, a court may not abstain where jurisdiction properly lies unless abstention is warranted under a recognized abstention doctrine. See, e. g., McClellan v. Carland, 217 U.S. 268, 281, 30 S.Ct. 501, 54 L.Ed. 762 (1910); Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 404, 5 L.Ed. 257 (1821) (“It is most true, that this court will not take jurisdiction if it should not: but it is equally true that it must take jurisdiction, if it should. . . . We have no more right to decline the exercise of jurisdiction which is given, than to usurp that which is not given.”) See generally P. Bator, P. Mishkin, D. Shapiro & H. Wechsler, Hart and Wechsler’s The Federal Courts and the Federal System, 1258-59 (2d ed. 1973). And to my knowledge no abstention doctrine exists with respect to considerations of international comity. Rather, as Timberlane and Pacific Seafarers demonstrate, such considerations have been incorporated into an expanded jurisdictional test.

10 . In this respect, this case presents a less problematical situation for application of the Sherman Act than was presented in Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969), which was criticized in Note, American Antitrust Law and Canadian Patent Rights, 118 U.Pa.L.Rev. 983 (1970), for ignoring the fact that Canadian law apparently required the restrictive patent licensing policy that was under attack in that case. The present case is also readily distinguishable from those situations, referred to by the majority, where a litigant who has been ordered by an American court to produce records maintained in a foreign country would be in violation of foreign law if it complied with the American court order.

11 . See, e. g., United States v. General Electric Co., 115 F.Supp. 835 (D.N.J.1953); United States v. Imperial Chemical Industries, 105 F.Supp. 215 (S.D.N.Y.1952) (in each case, savings clause included in order so as not to place defendant in violation of foreign laws). See generally Beausang, The Extraterritorial Jurisdiction of the Sherman Act, 70 Dick.L.Rev. 187, 194-95 (1966).