Baxter Int'l Inc v. Abbott Laboratories ( 2003 )


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  •                            In the
    United States Court of Appeals
    For the Seventh Circuit
    ____________
    No. 02-2039
    BAXTER INTERNATIONAL, INCORPORATED,
    Plaintiff-Appellant,
    v.
    ABBOTT LABORATORIES,
    Defendant-Appellee.
    ____________
    Appeal from the United States District Court for the
    Northern District of Illinois, Eastern Division.
    Nos. 01 C 4809 & 01 C 4839—Ronald A. Guzmán, Judge.
    ____________
    ARGUED OCTOBER 29, 2002—DECIDED JANUARY 16, 2003
    ____________
    Before CUDAHY, COFFEY, and EASTERBROOK, Circuit
    Judges.
    EASTERBROOK, Circuit Judge. Baxter International in-
    vented sevoflurane in the 1960s. This substance, a gas at
    room temperature, has good anesthetic properties. But it
    was too difficult and costly to produce commercially until
    the early 1980s, when Baxter devised an efficient process
    for its manufacture. Baxter obtained two process patents,
    the latter of which expires in December 2005. But the
    anesthetic gas still could not be sold in the United States
    unless it first received the FDA’s approval, and Baxter was
    not willing to bear the costs of the required medical testing.
    2                                                No. 02-2039
    So in 1988 it granted to Maruishi Pharmaceutical Com-
    pany, of Japan, an exclusive worldwide license to practice
    the sevoflurane process patents Baxter owned or was pur-
    suing. Maruishi obtained approval to sell the anesthetic in
    Japan, where it was a great success, as it has become in
    other nations since. This suggested that it would be worth
    obtaining the FDA’s approval to sell in the United States.
    Abbott Laboratories took a sublicense from Maruishi in
    1992, obtained the FDA’s approval after spending approxi-
    mately $60 million on testing, and in 1995 began selling
    sevoflurane in the United States. Maruishi remains the sole
    manufacturer under the Baxter patents; Abbott resells
    sevoflurane that it purchases from Maruishi, which pays
    Baxter a royalty based on its total sales. Today sevoflurane
    is the best-selling gas used for anesthesia in the United
    States, with approximately 58% of sales. Desflurane holds
    35% of this market, and isoflurane accounts for almost all
    of the remaining sales. Isoflurane is not protected by any
    patent and sells for less, but it is slower in both onset and
    recovery and has an irritating taste and smell. Desflurane
    likewise has an annoying smell and aftertaste, though its
    properties otherwise are comparable to sevoflurane—which
    therefore has become the anesthetic of choice and com-
    mands a premium price.
    Sevoflurane’s success gave rivals an incentive to invent
    around Baxter’s process patents. Ohio Medical Associates
    (now known as Ohmeda) set out in 1997 to do just this. In
    1999 Ohmeda obtained a patent for a new way of making
    sevoflurane, distinct from Baxter’s process but equivalently
    cheap and effective. It planned to introduce a rival sevo-
    flurane anesthetic, which it could do by filing a “me too” ap-
    plication with the FDA. Ohmeda could receive approval
    without costly tests just by showing that the finished prod-
    uct is identical to Abbott’s.
    Before Ohmeda could bring sevoflurane to market, it was
    acquired (in 1998) by Baxter—which decided to proceed
    No. 02-2039                                                   3
    with Ohmeda’s plans and compete with the sevoflurane
    made by Maruishi and sold in the United States by Abbott.
    Baxter concluded that it would make more from selling
    Ohmeda-process sevoflurane than it would lose in reduced
    royalties from Maruishi for Baxter-process sevoflurane.
    Abbott, which contends that it has spent more than $1 bil-
    lion to commercialize sevoflurane (including distribution of
    equipment for administering the drug and marketing to
    alert anesthesiologists to its benefits) did not welcome com-
    petition before the expiration of the Baxter patents. Abbott
    initiated arbitration under the Baxter-Maruishi agreement
    (to which it had become a party in 1992) and the Conven-
    tion on the Recognition and Enforcement of Foreign Arbi-
    tral Awards, [1970] 21 U.S.T. 2517, T.I.A.S. No. 6997, im-
    plemented by 
    9 U.S.C. §§ 201-08
    . The agreement specifies
    a multi-national tribunal, which consisted of a U.S. attor-
    ney, a Spanish attorney, and a Japanese law professor.
    Abbott contended that Baxter’s sale of Ohmeda-process
    sevoflurane before the Baxter patents expired would violate
    the exclusivity term of the license; Baxter replied, first, that
    the license does not explicitly forbid Baxter itself from
    competing with Maruishi (in other words, that exclusivity
    means only that Baxter can not issue any other licenses),
    and, second, that if the license does forbid Baxter from com-
    peting, then it violates U.S. antitrust law, particularly §1
    of the Sherman Act, 
    15 U.S.C. §1
    , and is unenforceable.
    The arbitrators ruled against Baxter on both issues. The
    tribunal held that the license is exclusive in the strong
    sense and that any reduction in competition is attributable
    to Baxter’s decision to purchase the competing Ohmeda
    process while bound by this promise not to compete with its
    licensee. On cross suits filed by Abbott and Baxter, the dis-
    trict judge then directed Baxter to comply with the award,
    rejecting its contention that the license, as construed by the
    tribunal, violates the Sherman Act or the public policy of
    the United States. The judge observed that competition
    4                                                No. 02-2039
    from desflurane, isoflurane, and sevoflurane made by any
    other process (for the sevoflurane molecule is unpatented)
    is unaffected. 
    2002 U.S. Dist. LEXIS 5475
     (N.D. Ill. Mar. 26,
    2002).
    Baxter argues at length in this court that the Baxter-
    Maruishi license, construed to keep Ohmeda-process sevo-
    flurane off the U.S. market until 2006, is a territorial
    allocation unlawful per se under §1 of the Sherman Act. But
    the initial question is whether Baxter is entitled to reargue
    an issue that was resolved by the arbitral tribunal. We
    think not; a mistake of law is not a ground on which to set
    aside an award. See George Watts & Son, Inc. v. Tiffany &
    Co., 
    248 F.3d 577
     (7th Cir. 2001). Section 207 says that
    “[t]he court shall confirm the award unless it finds one of
    the grounds for refusal or deferral of recognition or enforce-
    ment of the award specified in the said Convention.” Legal
    errors are not among the grounds that the Convention gives
    for refusing to enforce international awards. Under domes-
    tic law, as well as under the Convention, arbitrators “have
    completely free rein to decide the law as well as the facts
    and are not subject to appellate review.” Commonwealth
    Coatings Corp. v. Continental Casualty Co., 
    393 U.S. 145
    ,
    149 (1968). “Courts thus do not sit to hear claims of factual
    or legal error by an arbitrator”. Paperworkers v. Misco, Inc.,
    
    484 U.S. 29
    , 38 (1987).
    Arbitrators regularly handle claims under federal stat-
    utes. See, e.g., Rodriguez de Quijas v. Shearson/American
    Express, Inc., 
    490 U.S. 477
     (1989) (claims under the Securi-
    ties Act of 1933); Shearson/American Express, Inc. v.
    McMahon, 
    482 U.S. 220
     (1987) (claims under the Securities
    Exchange Act of 1934 and the Racketeer Influenced and
    Corrupt Organizations Act); Scherk v. Alberto-Culver Co.,
    
    417 U.S. 506
     (1974) (international arbitration of claims
    under the Securities Exchange Act of 1934). We do not see
    any reason why things should be otherwise for antitrust
    issues—nor, more importantly, does the Supreme Court,
    No. 02-2039                                                 5
    which held in Mitsubishi Motors Corp. v. Soler Chrysler-
    Plymouth, Inc., 
    473 U.S. 614
     (1985), that international
    arbitration of antitrust disputes is appropriate.
    Mitsubishi did not contemplate that, once arbitration was
    over, the federal courts would throw the result in the waste
    basket and litigate the antitrust issues anew. That would
    just be another way of saying that antitrust matters are not
    arbitrable. Yet this is Baxter’s position. It wants us to dis-
    regard the panel’s award and make our own decision. The
    Supreme Court’s approach in Mitsubishi was different. It
    observed (
    473 U.S. at
    639 n.21):
    The utility of the Convention in promoting the
    process of international commercial arbitration de-
    pends upon the willingness of national courts to let
    go of matters they normally would think of as their
    own. Doubtless, Congress may specify categories of
    claims it wishes to reserve for decision by our own
    courts without contravening this Nation’s obli-
    gations under the Convention. But we decline to
    subvert the spirit of the United States’ accession
    to the Convention by recognizing subject-matter
    exceptions where Congress has not expressly di-
    rected the courts to do so.
    Starting from scratch in court, as Baxter proposes, would
    subvert the promises the United States made by acceding
    to the Convention.
    According to Baxter, there is a difference between arbi-
    trating an antitrust issue (the subject of Mitsubishi) and
    creating one—which it accuses these arbitrators of doing. If
    the tribunal had construed the Baxter-Maruishi agreement
    differently, there would have been no antitrust problem.
    Baxter relies on the observation in George Watts that arbi-
    trators are not allowed to command the parties to violate
    rules of positive law. That’s true enough, but whether the
    tribunal’s construction of the Baxter-Maruishi agreement
    6                                              No. 02-2039
    has that effect was a question put to, and resolved by, the
    arbitrators. They answered no, and as between Baxter and
    Abbott their answer is conclusive. This is a point antici-
    pated in Mitsubishi, which observed (id. at 638): “While the
    efficacy of the arbitral process requires that substantive
    review at the award-enforcement stage remain minimal, it
    would not require intrusive inquiry to ascertain that the
    tribunal took cognizance of the antitrust claims and actu-
    ally decided them.” The arbitral tribunal in this case “took
    cognizance of the antitrust claims and actually decided
    them.” Ensuring this is as far as our review legitimately
    goes.
    Treating Baxter as bound (vis-à-vis Abbott) by the tribu-
    nal’s conclusion that the license (as construed to provide
    strong exclusivity) is lawful does not condemn the public
    to tolerate a monopoly. If the three-corner arrangement
    among Baxter, Maruishi, and Abbott really does offend
    the Sherman Act, then the United States, the FTC, or any
    purchaser of sevoflurane is free to sue and obtain relief.
    None of them would be bound by the award. As far as we
    can see, however, only Baxter is distressed by the award—
    and Baxter, as a producer, is a poor champion of consumers.
    See Atlantic Richfield Co. v. USA Petroleum Co., 
    495 U.S. 328
     (1990); Cargill, Inc. v. Monfort of Colorado, Inc., 
    479 U.S. 104
     (1986); Brunswick Corp. v. Pueblo Bowl-O-Mat,
    Inc., 
    429 U.S. 477
     (1977).
    What relief the Antitrust Division, the FTC, or a consumer
    would obtain, if there is an antitrust problem, is an inter-
    esting question. Baxter thinks that the solution should be
    an order allowing it to sell Ohmeda-process sevoflurane. It
    wants to take its acquisition of Ohmeda as given and ask
    what consequences it has for exclusivity under the Baxter-
    Maruishi agreement. Yet this is anachronistic. The Baxter-
    Maruishi agreement came first, and its exclusivity rule was
    a lawful ancillary agreement designed to induce Maruishi
    and its sublicensees to make the investments needed to
    No. 02-2039                                                  7
    bring the new drug to market. See generally Polk Bros., Inc.
    v. Forest City Enterprises, Inc., 
    776 F.2d 185
     (7th Cir. 1985);
    Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 
    792 F.2d 210
     (D.C. Cir. 1986) (Bork, J.). At the time Baxter ac-
    quired Ohmeda it was obliged by contract to refrain from
    producing sevoflurane until 2006. (This is how the tribunal
    understood the Baxter-Maruishi agreement, and a court
    must accept this interpretation.) So if there is an antitrust
    problem, it lies in the acquisition—and the remedy would
    be divestiture of the Ohmeda process patent. Baxter can
    achieve that outcome on its own. Baxter, which can solve
    unilaterally any antitrust problem, is in no position to insist
    that the burden of solution fall on Abbott by depriving it of
    the benefit of the exclusive Baxter-Maruishi license. Why
    should a decision Baxter made in 1998 reduce the rights
    Abbott enjoys under a promise Baxter made to Maruishi in
    1988? But it is unnecessary to pursue this line of argument.
    All that matters today is that the arbitrators have con-
    cluded that the antitrust laws (and Baxter’s related argu-
    ments, which we need not address) do not diminish Abbott’s
    contractual rights—and that decision is conclusive between
    these parties.
    AFFIRMED
    CUDAHY, Circuit Judge, dissenting. To understand fully
    why the majority’s enforcement of this dubious arbitration
    award is misguided, a brief synopsis of the background
    material not fully described by the majority is essential.
    In 1983 and in 1988 Baxter gave options to Maruishi to
    license patents covering the one-step process of manufactur-
    ing sevoflurane. By 1992, when negotiations with Abbott
    8                                               No. 02-2039
    concerning the introduction of sevoflurane in the United
    States were undertaken, Baxter’s product and method-of-
    use patents for sevoflurane had expired. Arbitration Tran-
    script at 675-83 (“Arb. Tr.”). Hence, the only patents that
    Baxter could license to Maruishi and that Maruishi could
    in turn sublicense to Abbott were those covering the one-
    step manufacturing process, which were still in effect. In
    its negotiations with Baxter, Maruishi considered attempt-
    ing to obtain a covenant not to compete not only with
    respect to the one-step process but also as to sevoflurane
    itself, but instead turned its attention elsewhere. Maruishi
    concluded that the exclusive license for the one-step proc-
    ess and related intellectual property was “sufficient protec-
    tion.” See Arb. Tr. at 523-24. The 1992 negotiations with
    Abbott dealt only with the one-step process. Arb. Tr. at 386-
    91.
    In 1992, when sublicensing to Abbott was negotiated,
    two distinct sets of agreements were involved in the ne-
    gotiations. First, there were the Sevoflurane Agreements
    establishing the terms of the licenses, and granting exclu-
    sive rights to Maruishi and to Abbott to manufacture
    sevoflurane under the one-step patent, to all improve-
    ments on the one-step patents and to all technology and
    confidential proprietary information (“know-how”) acquired
    during the development of the one-step process. Next, all
    the parties entered into a Dispute Resolution Agreement
    (DRA), first, to ensure that in the event of a dispute com-
    mercialization of sevoflurane would go forward and, sec-
    ond, to provide a mechanism (arbitration) for resolving
    disputes arising from the Sevoflurane Agreements that
    would arguably impair what the parties referred to as the
    “Original Commercial Relationship” (OCR). The arbitra-
    tors were instructed by the DRA to attempt to maintain
    this Original Commercial Relationship—an “unusual” con-
    cept. Appellant’s Br. at 9.
    No. 02-2039                                               9
    By the late 1990s, Ohmeda had developed and pa-
    tented a different, three-step process to make sevoflurane
    suitable to be marketed as a generic drug. Subsequently,
    Baxter acquired Ohmeda. Faced with the threat of generic
    competition—always anticipated, but now apparently to
    be undertaken by Baxter—Abbott sought arbitration. The
    arbitration panel conceded that the Baxter-Maruishi li-
    censing agreement would not preclude Baxter’s offering
    generic competition because this licensing agreement cov-
    ered only the one-step manufacturing process, which bore
    no relation to the three-step process. But a two-member
    majority of the panel found that, under the Dispute Res-
    olution Agreement invoking the Original Commercial Re-
    lationship, Baxter’s proposed sales of generic sevoflurane
    could be enjoined because they would reduce Abbott’s
    revenues below monopoly levels, even though the expecta-
    tion of generic competition was nothing new. The third
    member of the arbitral panel (the only American) dis-
    sented since he concluded that the arbitrators were not
    authorized to act independent of the licensing agree-
    ment itself. The majority also found a breach of an Illinois
    state duty of good faith, which the dissenting arbitrator
    thought specious.
    The majority upholds the arbitration award here by
    declaring that, once the arbitrators have spoken to the
    antitrust issues and in effect commanded the parties to
    violate the Sherman Act, the courts have no business
    intervening. Of course, the doctrine that requires extreme
    deference by the courts to arbitration awards is based
    on the theory that the parties to a contract may cede
    broad, almost unlimited, power to an arbitration panel to
    interpret their agreement. See First Options of Chicago,
    Inc. v. Kaplan, 
    514 U.S. 938
     (1995); see also IDS Life Ins.
    Co. v. Royal Alliance Assoc., Inc., 
    266 F.3d 645
    , 649
    (7th Cir. 2001) (“Within exceedingly broad limits, the
    parties to an arbitration agreement choose their method
    10                                                  No. 02-2039
    of dispute resolution and are bound by it however bad
    their choice appears to be either ex ante or ex post.”). In
    fact, the arbitrators function almost as agents of the par-
    ties to extend their deal to cover unforeseen circum-
    stances. See E. Associated Coal Corp. v. United Mine
    Workers of America, 
    531 U.S. 57
    , 62 (2000) (telling courts
    to “treat the arbitrator’s award as if it represented an
    agreement between [the parties] as to the proper mean-
    ing of the contract’s words.”); EEOC v. Indiana Bell Tel.
    Co., 
    256 F.3d 516
    , 522 (7th Cir. 2001) (“The arbitrator acts
    on their (joint) behalf, with whatever authority the con-
    tract bestows. The resulting award is effectively the par-
    ties’ joint decision.”). All this rests on the proposition that
    the parties are free to adjust rights and liabilities among
    themselves as they see fit and through the instrumen-
    tality of arbitration to follow wherever the situation may
    demand. In this bilateral context a commitment to defer-
    ence cannot be questioned.
    But other considerations enter the mix when the issue
    becomes a matter of the arbitrators’, in interpreting a
    statute, commanding the parties to break the law or to
    violate clearly established norms of public policy.1 In the
    case before us, the arbitrators have instructed Abbott
    and Baxter (by imposing on Baxter a broad covenant not
    to compete with respect to sales of sevoflurane itself) to
    1
    As the majority notes, the present case is governed by the 1958
    Convention on the Recognition and Enforcement of Foreign Arbi-
    tral Awards, 21 U.S.T. 2517, T.I.A.S. No. 6996, implemented by
    
    9 U.S.C. §§ 201
     et seq. (“Convention”). 
    9 U.S.C. § 207
     commands
    a court to enforce an arbitration award under the Convention
    unless one of the grounds for refusal to enforce found in the
    Convention is present. Article V(2)(b) of the Convention allows
    a court to refuse to enforce an arbitration award when “recogni-
    tion or enforcement of the award would be contrary to the pub-
    lic policy of that country.”
    No. 02-2039                                                  11
    effect a horizontal allocation of markets, a clear violation
    of the Sherman Act. Under the arbitral decision, Abbott is
    granted a monopoly2 in the sale of sevoflurane in the
    United States.
    For some considerable time not long in the past, the
    law of the land was that antitrust disputes were not
    arbitrable. See Am. Safety Equip. Corp. v. J. P. Maguire
    & Co., 
    391 F.2d 821
     (2d Cir. 1968); Applied Digital Tech.,
    Inc. v. Continental Cas. Co., 
    576 F.2d 116
     (7th Cir. 1978).
    Claims made under the Sherman Act were not merely
    private claims, but were quasi-public claims designed to
    protect the rights of consumers and the public at large.
    Applied Digital Tech., 
    576 F.2d at 117
    . Since more than
    merely the rights of the parties were at issue, the agree-
    ment of the parties to arbitrate could not supersede the
    public’s presumed interest in a judicial resolution of anti-
    trust claims.
    The growing fondness for arbitration, however, eventual-
    ly eliminated the prohibition on submitting antitrust
    matters to arbitration. Mitsubishi Motors Corp. v. Soler
    Chrysler-Plymouth, Inc., 
    473 U.S. 614
     (1985), did not pur-
    port to directly overturn the doctrine that domestic anti-
    trust claims could not be arbitrated, but subsequently, the
    Supreme Court in dicta and most of the Courts of Appeal
    considering the issue have interpreted Mitsubishi as plac-
    ing antitrust and other statutory claims within the ambit
    of arbitration. See, e.g., Gilmer v. Interstate/Johnson Lane
    Corp., 
    500 U.S. 20
    , 28 (1991) (“The Sherman Act, the Se-
    curities Exchange Act of 1934, RICO, and the Securities
    2
    There is no dispute that Baxter’s Ohmeda is the only generic
    competitor in the sevoflurane market for the foreseeable future,
    nor is there a dispute that the arbitral decision’s prohibition
    on the sale of generic sevoflurane by Baxter preserves monopoly
    prices and levels of output of Abbott’s sevoflurane product.
    12                                                   No. 02-2039
    Act of 1933 all are designed to advance important pub-
    lic policies, but, as noted above, claims under those stat-
    utes are appropriate for arbitration.”); Seacoast Motors
    of Salisbury, Inc. v. DaimlerChrysler Motors Corp., 
    271 F.3d 6
     (1st Cir. 2001); Kotam Elecs., Inc. v. JBL Consumer
    Prods., Inc., 
    93 F.3d 724
     (11th Cir. 1996); Sanjuan v.
    Am. Bd. of Psychiatry & Neurology, Inc., 
    40 F.3d 247
     (7th
    Cir. 1994); Nghiem v. NEC Elec., Inc., 
    25 F.3d 1437
     (9th
    Cir. 1994); Swensen’s Ice Cream Co. v. Corsair Corp., 
    942 F.2d 1307
     (8th Cir. 1991).
    The present case is a good example of the extent to
    which arbitration has come to pervade the legal culture.
    First, the parties here constructed an elaborate, pre-dispute
    arbitration agreement that not only served to regulate
    the licensing agreement itself, but also, in an extraordi-
    nary spasm of creativity during the arbitration, generated
    a new and seemingly boundless cause of action, entirely
    separate from the license itself, under which the par-
    ties could presumably proceed. Then, during the arbitral
    process, Baxter submitted to the arbitrators the supple-
    mental argument3 that, if the arbitrators pursued what
    3
    It is an important distinction that this rather meta-juridical
    antitrust claim “decided” by the arbitrators was not a simple
    claim by Baxter against Abbott, but rather a request by Baxter
    that the arbitrators step back and consider the larger implica-
    tions of their underlying decision. This distinction becomes clear
    when one recognizes that this issue could simply have been
    ignored by the arbitrators and considered for the first time in
    the district court—the arbitrators’ interpretation of the license
    and the DRA did not involve antitrust issues. But, if Baxter
    had not raised the antitrust issue during arbitration, it would
    have risked being met with a defense of waiver to considera-
    tion of the issue here. Yet, on the other hand, Baxter’s position
    here might well have been strengthened if it had chosen not
    to bring the question forward during arbitration and thereby
    (continued...)
    No. 02-2039                                                    13
    eventually did become their line of decision, they would
    be commanding unlawful conduct under the Sherman
    Act. And finally, neither Baxter nor Abbott contend that
    arbitration was inappropriate for resolution of the anti-
    trust claim.
    Now, the majority has taken the process one giant step
    further and has found that Mitsubishi not only allows
    submission of statutory and antitrust claims to arbitra-
    tion, but denies our prerogative to refuse to enforce awards
    that command unlawful conduct.4 The deciding circum-
    stance, according to the majority, is that the question
    was put to, and decided by, the arbitrators themselves.
    Maj. Op. at 5-6 (“That’s true enough, [that arbitrators are
    not allowed to command unlawful conduct,] but whether
    the construction of the Baxter-Maruishi agreement has
    that effect was a question put to, and resolved by, the
    arbitrators. . . . [A]s between Baxter and Abbott, their
    answer is conclusive.”). Therefore, under the majority’s
    analysis, the rule that unlawful conduct cannot be com-
    manded by arbitrators is consumed by the exception
    that, if the arbitrators themselves say that what they
    have commanded is not unlawful, then “their answer is
    conclusive.”
    3
    (...continued)
    armed Abbott with the (dispositive, as it turns out) argument for
    deference to the arbitration award.
    4
    The Convention itself provides grounds for refusing to confirm
    an award under “public policy” principles. This circuit has rec-
    ognized grounds (under the Federal Arbitration Act) for refus-
    ing to confirm if an arbitration panel acts in manifest disre-
    gard of the law, or, as otherwise viewed, if the arbitrators’ deci-
    sion commands a party to act unlawfully. George Watts & Son,
    Inc. v. Tiffany & Co., 
    248 F.3d 577
     (7th Cir. 2001). Rather than
    repeatedly referring to the applicable tests, I will simply refer
    to “unlawful conduct.”
    14                                                   No. 02-2039
    This cannot be correct. While Mitsubishi and its progeny
    make clear that the choice of the arbitral forum is to be
    respected, they do not confer on the arbitrators a prerog-
    ative to preemptively review their own decisions and re-
    ceive deference on that review in subsequent judicial evalu-
    ations.5 The majority is way off-base when it says that
    Baxter seeks merely to have us disregard the panel’s
    decision and “throw the result in the waste basket.” Maj.
    Op. at 5. Instead, we are performing exactly the tradi-
    tional function of judicial review properly assigned only
    to us.
    Therefore, I do not think we can simply note the arbi-
    tration panel’s resolution of the antitrust issue and con-
    sider our work done. Instead, we must fulfill our judicial
    responsibilities and examine the effect of the outcome
    commanded by the arbitral award.6 This means that
    we have to determine whether, going forward, the hori-
    zontal restraint on Baxter’s competing with Abbott in
    the sevoflurane market violates the Sherman Act.
    5
    It is clear that the arbitrators were doing exactly that—
    reviewing their own decision—and not deciding issues of law
    necessary to interpret the various agreements. The panel’s “deci-
    sion” on the antitrust issues is that “[i]t considers that no ille-
    gality results from the interpretation of the Sevoflurane Agree-
    ments in this Award.” Supp. App. at 18-19.
    6
    My analysis takes place in the context that the meaning of
    the Sevoflurane Agreements, as interpreted by the arbitrators, is
    not contested by Baxter. Therefore, although the arbitrators’
    findings seem a bit far-fetched to me, I take as a given that the
    DRA contains a broad, if implied, covenant not to compete that
    prohibits Baxter from competing with Abbott in any way in
    the sevoflurane market. This, of course, does not respond to the
    issue of lawfulness, which is the subject of my substantive
    analysis.
    No. 02-2039                                                    15
    Sometimes, of course, a horizontal restraint is a neces-
    sary part of an endeavor that, in the whole, benefits con-
    sumers. Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of
    Univ. of Oklahoma, 
    468 U.S. 85
    , 101 (1984). That is the
    claim here—that Abbott would not have undertaken to
    launch sevoflurane commercially had it not been guaran-
    teed against all competition by Baxter. Yet it is conceded
    that there was no express covenant not to compete.7 Baxter
    gave an exclusive license to the one-step process but no
    guarantee against competition in sevoflurane produced
    by some other process. The absence of an express cove-
    nant not to compete strongly suggests that such a cove-
    nant could not have been the sine qua non of Abbott’s
    launching sevoflurane in the United States market.
    The majority unquestioningly accepts the contrary prop-
    osition of Abbott, that this broad implied noncompete
    covenant was “a lawful ancillary agreement designed to
    7
    The majority bolsters its deference argument by glossing
    over some significant nuances in the various Baxter-Maruishi-
    Abbott agreements and the arbitral decision. The arbitrators
    did not hold “that the license is exclusive in the strong sense.”
    Maj. Op. at 3. In fact, the arbitrators found that the license,
    which is limited solely to the one-step process and all associated
    know-how and technology, was not violated in any way by Baxter’s
    actions regarding the three-step process. Supp. App. at 13-14. The
    “strong” noncompete was implied from the DRA, which the
    arbitration panel found contained its own independent cause
    of action and provided relief to Abbott for any conduct by Bax-
    ter that reduced the monopoly revenue Abbott would otherwise
    receive under the one-step licenses. In theory, under the broad
    language of the arbitral award, even if Baxter invented and
    brought to market (before 2005) a completely new and different
    inhalable anesthetic that competed with sevoflurane and re-
    duced Abbott’s revenues from it, Baxter would be in violation of
    the DRA and enjoined from any manufacture and sale. See Supp.
    App. at 15, ¶¶ 25, 26.
    16                                                  No. 02-2039
    induce Maruishi and its sublicensees to make the invest-
    ments needed to bring the new drug to market.” Maj. Op.
    at 5. First, as I have already noted, Maruishi has never
    argued that it needed, or believed it had received, the
    broad noncompete found by the arbitrators. Second, this
    statement begs the question of what possible added in-
    centive Abbott could have received from this additional
    guarantee of monopoly above and beyond the scope of the
    one-step patent.8 By agreeing to completely exclude
    itself from any activity in the sevoflurane market that
    involved the one-step process, the know-how related to
    the one-step process or any “improvement” on the technol-
    ogy or know-how of the one-step process patents, Baxter
    relegated itself to a position identical to that of the other
    potential competitors that were anticipated by Abbott.
    Abbott had the incentive to commercialize sevoflurane
    in the United States with the knowledge that competi-
    tors like Ohmeda were lying in wait to “free-ride” on Ab-
    bot’s regulatory approval and commercialization efforts.
    8
    I note briefly the questions raised by the Fourth Circuit’s
    decision in Compton v. Metal Products, Inc., 
    453 F.2d 38
     (4th Cir.
    1971). In that case, a patentee licensed its patented techno-
    logy together with a broad (express) noncompete that went far
    beyond the scope of the patented technology. The court found
    this agreement not to compete an unlawful restraint of trade. I
    am unconvinced by the district court’s efforts to distinguish
    Compton from the present case on the basis of the degree to which
    Baxter was restricted. Abbott Labs. v. Baxter Intern., Inc., 
    2002 WL 467147
    , *9 (N.D. Ill March 27, 2002). The point of Compton
    is that restraints on competition beyond the scope of the li-
    censed patented technology are unlawful. 
    Id. at 45
     (“We think
    that by agreeing to restrictions on his own competition which
    he could not compel of others, the patentee has extended the
    monopoly granted by the patent laws beyond its legal bounds.”).
    This agreement to restrictions that extend and enhance the
    scope of the patent monopoly is also what is objectionable here.
    No. 02-2039                                                   17
    There is no reason why Abbott would lose any of its incen-
    tive if Baxter were added to the list of potential competi-
    tors (or would gain incentive if Baxter were excluded from
    the list), so long as Baxter remained excluded from one-step
    competition and was barred from using any of the know-
    how and technology associated with its development of
    the one-step process.9 I do not think that there could
    rationally have been any pro-competitive effect from the
    enhanced noncompete implied by the arbitrators.
    Arbitration proceedings aside, and given that a cov-
    enant not to compete was not essential to Abbott’s mar-
    ket development, Abbott and Baxter could not lawfully
    agree to this arrangement without violating the Sherman
    Act, and I fail to see why a panel of arbitrators, on behalf
    of the parties, can interpret a prior agreement of these
    parties to reach the same unlawful result.
    It is, of course, not the interests of the parties them-
    selves that are primarily at stake in the outcome of this
    arbitration. Instead the interest of the consuming public
    is at stake. That public faces higher prices and a con-
    strained supply of sevoflurane as a result of Abbott’s mo-
    nopoly, conferred by the arbitrators. When public rights
    are at stake, there is good reason to be more reluctant to
    defer totally to the arbitrators, since they are acting
    as delegates of the private parties, not of the consuming
    public. Too deferential an attitude by the courts when the
    rights of the consuming public are at stake can severely
    undermine the foundations of our economy. For there
    9
    In fact, an argument can be made that Baxter was disadvan-
    taged compared to other competitors by virtue of its agreement
    with Abbott and association with the one-step process. Baxter
    would face, as it did in the arbitration in the present case, the
    hurdle of showing that it did not succumb to the temptation to
    use any of its existing knowledge and technology base, a hurdle
    not faced by an outside competitor.
    18                                             No. 02-2039
    can be little doubt that granting Abbott a monopoly to
    produce sevoflurane in the United States will raise prices
    and restrict supply. And applying the analysis of the
    majority to arbitration awards yet to come will open a
    royal detour around the antitrust laws.
    Nor would a denial of the remedy imposed by the arbi-
    trators result in a real loss to Abbott, since Abbott admit-
    ted at the arbitration hearing that it had anticipated
    and planned for generic competition and had specifically
    anticipated competition from Ohmeda. Arb. Tr. at 323-25;
    Supp. App. at 19. In fact, Abbott negotiated with Maruishi
    provisions that would “account[ ] for the downsides of
    generic competition.” Arb. Tr. at 323. The purchase of
    Ohmeda by Baxter produced a windfall for Abbott where-
    by Abbott was able to manipulate the arbitration to its
    advantage and escape the competition it had earlier antic-
    ipated.
    It is not my role to critique the arbitration decision—
    however flawed—except in this case to object to its anti-
    competitive outcome, which orders the parties to violate
    the antitrust laws. The interest of consumers was not
    represented on the arbitration panel and the panel’s deci-
    sion ignored consumer interests. Defense of public inter-
    ests is sometimes better fulfilled by courts than by arbi-
    tration panels.
    Nor am I much reassured by the substitute antitrust
    enforcement possibilities mentioned by the majority. It
    is conceivable that the Federal Trade Commission or
    the Justice Department might attack Abbott’s monop-
    oly conferred by the arbitrators or that another competi-
    tor might surface to provide competition from a generic
    sevoflurane manufactured by some process yet to be
    invented, but these possible sources of law enforcement
    or of competition are all hypothetical. I know of no au-
    thority for the theory that the existence of hypothetical
    No. 02-2039                                              19
    sources of antitrust enforcement or of competition can
    be a defense to an agreement violative of the antitrust
    laws or to an arbitration award imposing such an agree-
    ment.
    So while I agree with the majority that antitrust claims
    are arbitrable, and I also agree that the grounds for
    refusing to enforce an arbitration award are limited, I do
    not agree that there is support in the law for the major-
    ity’s excision of antitrust arbitration from the general
    framework of judicial review that prohibits an arbitra-
    tion panel’s award from commanding illegal conduct. And
    in the case before us, the arbitration panel’s ruling grant-
    ing Abbott a monopoly in the United States sevoflurane
    market commands illegal conduct on the part both of
    Baxter and Abbott and is unenforceable.
    I would remand with instructions not to enforce the
    arbitral award, and I therefore respectfully DISSENT.
    A true Copy:
    Teste:
    ________________________________
    Clerk of the United States Court of
    Appeals for the Seventh Circuit
    USCA-02-C-0072—1-16-03