Court Opinion

ID: 2996157
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:25:49.94206+00
Date Added: 2024-06-11T12:03:34.599017
License: Public Domain

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