Court Opinion

ID: 8915885
Source: CourtListenerOpinion
Date Created: 2022-11-27 05:01:10.043633+00
Date Added: 2024-06-11T17:08:58.770118
License: Public Domain

K. K. HALL, Circuit Judge,
concurring in part and dissenting in part:
It is axiomatic that a party may not profit from its own wrongdoing. Yet the majority allows Burlington to receive a windfall at the expense of the defendants even though, at the time the defendants and Leesona struck their agreement, Burlington and Leesona were already parties to a remarkably similar royalty scheme, and the conspiracy in this case merely preserved that arrangement. Burlington benefitted handsomely from its deal with Leesona, receiving secret kickbacks from its royalty payments, and thereby securing a competitive advantage over its smaller rivals. Now, however, Burlington would have us hold that it was actually damaged by Leesona’s royalty program. I am astonished that my brethren would countenance Burlington’s opportunistic approach to this case much less sanction a reward for such reprehensible conduct. Accordingly, although I concur in much of the majority’s opinion, I respectfully dissent to Part III.
Leesona and the defendants in this case started out in the late 1950’s as competitors trying to market patented false twisting machinery. They were also originally combatants in litigation which brought the validity of Leesona’s patents into question, (the Whitin litigation). However, shortly before trial, in 1964, the parties to that litigation realized that they were jeopardizing all of their royalty programs; even if the Leesona patents were held invalid, the defendants still would have been unable to demand royalties for the use of their false twisting machinery in the face of unlicensed competition for Leesona.1 Consequently, they renounced their adversarial positions and settled the Whitin litigation in order to “preserve and enhance the interdependent royalty programs which a trial . .. might well have destroyed.” Duplan Corp. v. Deering Milliken, 444 F.Supp. 648 (D.S.C.1977). In the liability portion of this case, that settlement, with the attendant restraint of trade, was held to be an horizontal antitrust conspiracy between Leesona *396and the defendants, a per se violation of § 1 and § 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. Id., aff’d, 594 F.2d 979 (4th Cir. 1979).
Burlington and its subsidiaries, as plaintiffs injured by the conspiracy, claim as damages all of the royalties paid to the defendants and to Leesona after they conspired to block the Whitin litigation. Their damages theory is that the Whitin litigation, had it gone to trial, could have invalidated Leesona’s patents and eliminated the royalty programs. However, only a year before the Whitin settlement, Burlington itself abandoned an opportunity to test the same patents which would be at issue in the Whitin case, finding its own interests better served by paying royalties to Leesona in exchange for secret rebates. Thus, Burlington’s claim for royalties paid to Leesona rings hollow.
Burlington’s relationship with Leesona evolved as follows: In the late 1950’s, Burlington subsidiaries were using unlicensed high speed spindles manufactured by Mechanical Specialty Company. By avoiding royalties which would otherwise have been payable to Leesona, the Burlington companies enjoyed a competitive edge over smaller throwsters. In an attempt to curb this unlicensed competition, Leesona sued for patent infringement and nonpayment of royalties in consolidated cases against Madison (a Burlington subsidiary), and Mechanical Specialty (the Mechanical Specialty litigation).
The defendants in the Mechanical Specialty case were confident that they could win on the merits, convinced that the Leesona patents were invalid. Burlington was caught in a bind. If the Leesona patents were invalidated, the other throwsters would be relieved of their royalty obligations, which would eliminate Burlington’s cost advantage; on the other hand, if the Leesona patents were valid, Burlington would have to pay the same royalties as everyone else.2
Burlington solved its dilemma by, in the words of the district court, “orchestrating” a settlement to its own great advantage. In 1963, the defendants entered final consent judgments admitting validity and infringement. Burlington and Madison paid some damages for unlicensed prior use and took Leesona licenses, agreeing to pay royalties in the future. In return, Burlington and Madison received back one third of the royalties they paid to Leesona, thereby protecting a portion of their competitive margin over Leesona’s other licensees. This part of the settlement had to be kept secret because Leesona licenses contained “most-favored nations” clauses which required that all Leesona licensees be offered the same terms.
A year later, in the Whitin settlement, Leesona and the defendants in this case mutually affirmed their respective royalty systems. The kickback scheme thus firmly in place, Burlington and Madison continued to prosper from their intrigue.
In the late 1960’s, the other throwsters stopped paying royalties to Leesona. Consequently, Burlington’s competitive edge evaporated, and it no longer benefitted from supporting Leesona’s royalty program. So, at that time, Burlington joined the other throwsters in challenging the Leesona royalty system as a horizontal conspiracy in the cases consolidated in the fifth circuit as In Re Yarn Processing Patent Validity Litigation, MDL-82. Burlington never revealed in that litigation that it had been instrumental in preserving Leesona’s royalty program, nor that it had been the beneficiary of the one-third rebates which it was so stridently denouncing as illegal.3
Burlington and Leesona settled their differences in the In Re Yarn Processing case. Burlington recovered only a fraction of the damages claimed in that case, but would have the defendants in this case make up *397and treble the difference.4 The district court ultimately refused to sanction Burlington’s attempt to hold these defendants accountable for the royalties paid to Leesona. The amended judgment subtracted all of the Leesona-based damages on the theory that Burlington had bargained away its claim to damages from Leesona’s royalty program when it settled the In Re Yarn Processing case for such a small sum.
I agree in principle with the district court that, on this basis alone, we should have an appropriate case for claim reduction. However, the majority’s conclusion in Part VIII of the opinion is unassailable: the defense of claim reduction is not available in antitrust cases.
Yet that answer is not dispositive of this case. A more fundamental principle of our jurisprudence is that a party may not profit from its own inequity or take advantage of its own wrong. Cardozo, The Nature of the Judicial Process at 41.
The majority sloughs off the defendants’ attempt to show that Burlington caused a large portion of its claimed damages by saying that this issue is one of liability rather than damages, and thus cannot be considered at this time. At 387. In my view, this claim, which potentially involves two-thirds of the damages, deserves more than the majority’s pat dismissal.
Moreover, the majority has missed the point. This is not a situation of in pari delicto. The conspiracy between Leesona and Burlington is not the same as the conspiracy between Leesona and the defendants here. Burlington had no direct part in the conspiracy in this case. Thus, it was not necessary to go into the background of the relationship between Leesona and Burlington in order to determine liability for the conspiracy between Leesona and the defendants.
Now we are considering the very different question of whether to award damages to the extent of all royalties paid to Leesona and the defendants after the Whitin settlement. Regardless of the defendants’ potential liability, I would not permit Burlington to recover any of the royalties paid to Leesona. Burlington engineered the Mechanics 1 Specialty litigation settlement with Leesona, and designed the royalty-kickback machinery for. their mutual benefit. The Whitin settlement between the defendants and Leesona simply perpetuated that compact. Burlington now should not be heard to complain that it was actually harmed by its own scheme — a scheme different from the one the majority finds to have been disposed of in the liability portion of this litigation.

. Robert Leesona, president of Leesona, convinced Norman Armitage, an officer of DMRC, that the Whitin litigation should be settled, saying, “[T]here is more at stake than the cost of a suit. If you win, you lose, and if you lose, you lose — because if the patent is broken, there will be no royalty.” 444 F.Supp. at 680.

. Thus, Burlington was faced with the same sort of choice which would precipitate the Whitin settlement. See footnote 1 and accompanying text.

. Leesona raised an estoppel defense, but the case was settled before that issue could be fully-aired.

. Burlington asserted claims in the MDL-82 litigation aggregating $26,000,000, but released Leesona for $789,683. In this case, Burlington claims damages based on the royalty payments to Leesona (after subtracting the amount received from settling the In Re Yarn Processing case), amounting to $13,439,793.72.