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FARBENFABRIKEN BAYER, A.G. v. STERLING DRUG INC.

July 21, 1961

FARBENFABRIKEN BAYER, A.G., a corporation, Plaintiff,
v.
STERLING DRUG INC., a corporation, Defendant



The opinion of the court was delivered by: SMITH

This is a civil action in which the plaintiff, a corporation organized under the laws of Germany, asserts four separate but related claims, to wit, first, a claim for profits allegedly due for the years of 1940 and 1941 under a contract; second, a claim to property and funds allegedly appropriated by the defendant; third, and in the alternative, a claim for damages for breach of contract; and fourth, a legal and equitable claim based upon a breach of trust. The action is essentially one to compel an accounting.

The action came before the Court on a motion for the entry of judgment filed by the defendant under Rules 12(c) and 56(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A. The hearing on this motion was held in abeyance pending the conclusion of a pretrial conference held by the Court under Rule 16 of the Federal Rules of Civil Procedure, 28 U.S.C.A. The conference resulted in a comprehensive stipulation of facts and an agreement on the relevancy and materiality of eighteen written exhibits. Thereafter the plaintiff filed a counter-motion for summary judgment.

 These motions have been argued and are now before the Court for decision. The motions are based on the entire record, which includes the pleadings, stipulation, exhibits, and affidavits. The defendant has urged numerous grounds in support of its motion but it is here necessary to consider only the principal ones. It is our opinion that the grounds considered may be dispositive of the litigation.

 Parties

 The plaintiff, Farbenfabriken Bayer A.G., hereinafter identified as Farben, is engaged in the development, manufacture and sale of drugs and pharmaceutical products. The plaintiff alleges that it is the lawful successor to Farbenfabriken vorm. Friedrich Bayer and Company, hereinafter identified as Leverkusen. This allegation is denied by the defendant, but for the purpose of the present motions we shall accept it as true. It should be noted that the immediate successor to Leverkusen was I.G. Farbenindustrie, hereinafter identified as I.G. Farben, which succeeded to the business of Leverkusen in 1925.

 The defendant Sterling Drug, Inc., hereinafter identified as Sterling, a corporation of the State of Delaware, is engaged in the development, manufacture and sale of drugs and pharmaceutical products. It is the lawful successor to Sterling Products, Incorporated, and the Bayer Company, Inc., a New York corporation, hereinafter identified as Bayer. These corporations were merged on December 31, 1942.

 Facts

 I

 The predecessor of the plaintiff, Leverkusen, in 1894, organized a wholly-owned United States subsidiary, Farbenfabriken of Elberfeld Company, under the laws of New York. This subsidiary, in 1908, was granted registration of the United States trade-marks, to wit, the name 'Bayer' and the 'Bayer Cross,' disposed within a circle. The said predecessor, in 1913, organized two corporations under the laws of the State of New York, to wit, Synthetic Patents Company, Inc., and Bayer. The subsidiary, Farbenfabriken of Elberfeld Company, was thereafter dissolved, and some of its assets, including the said trade-marks, were transferred to Bayer. The use of the trade-marks by the subsidiary, and later Bayer, was exclusive between 1895 and 1917.

 II

 The capital stock of Bayer and of Synthetic Patents Company, Inc., and other assets of Leverkusen, were vested by the Alien Property Custodian on January 15, 1918, after the declaration of war on Germany. The vested assets were sold to the defendant's predecessor at public auction in December 1918, pursuant to the applicable provisions of the Trading with the Enemy Act, and Bayer became the wholly-owned subsidiary of the said predecessor. As hereinabove noted these corporations were merged on December 31, 1942.

 III

 After a period of negotiations which extended from August 1919 to October 1920, Leverkusen and Bayer entered into a contract under which the latter acquired the exclusive license to use the trade-marks in connection with the sale and distribution of acetylsalicylic acid (aspirin), and its compounds, in several Latin American countries. This contract contained, in addition to the usual terms and conditions of a license agreement, provisions which governed the sale and distribution of aspirin and aspirin products in the territory.

 IV

 Bayer agreed, as part of the consideration, to transfer to Leverkusen those trade-marks registered in the name of Bayer in the Latin American countries, and which, before such registration, had been employed by Leverkusen to designate its products in the same territory. Bayer further agreed to withdraw all pending applications for such trade-marks.

 V

 Leverkusen agreed not to issue any license for the use of the trade-marks to any other person or corporation. It further agreed: first, to ship and deliver aspirin and aspirin products only to Bayer; and, second, not to supply to any other person or corporation aspirin or aspirin products for sale in the territory under the trade-marks. The parties agreed 'to use their best endeavors to prevent all importation of' aspirin and aspirin products bearing the trade-marks.

 VI

 The contract provided that the business and distribution of aspirin and aspirin products was to be conducted solely by Bayer, through agencies appointed or to be appointed by it, except where existing agencies of Leverkusen were in active operation; in such case the latter agencies were to be utilized. There is a further proviso not relevant here. The subsidiary agencies of Leverkusen were utilized in the larger countries, except in Argentina, until 1941. These agencies, whether subsidiaries or independent, received payment for their activities.

 VII

 Pursuant to the terms of the agreement, Leverkusen manufactured, sold and delivered all the aspirin required in the territory until some time in 1939. Thereafter, likewise pursuant to the terms of the agreement, Bayer and its successor Sterling, manufactured, sold and delivered all the aspirin required in the territory. The aspirin was imported by the local agencies under the direction and control of Bayer, and the aspirin tablets were manufactured, packaged and sold by them, except in the smaller countries, where the local agencies were engaged solely in the sale of the finished products.

 VIII

 Supplemental Agreement

 IX

 The predecessors of the parties to this litigation, Bayer and Leverkusen, entered into an agreement dated April 1, 1923 (Exhibit B), purportedly intended to settle certain disputes which had arisen between them. It appears that they were then major competitors in the manufacture and sale of drugs and pharmaceutical products. This agreement effected a world-wide division of the drug and pharmaceutical market between Bayer and Leverkusen. They agreed: first, to allocate specific territories to each of them and to a newly formed corporation in which each of them was to have an interest; second, to mutually transfer trade-mark rights with respect to such territories and according to the respective allocations; third, to cooperate to protect each other's markets and to eliminate competition; and fourth, to restrict imports and exports. The terms and conditions of the agreement are summarized in the opinion of Judge Weinfeld in the case of United States v. Bayer Company, D.C., 135 F.Supp. 65, at pages 68, et seq.

 Laboratorios Recalcine

 (Hegemann)

 X

 Prior to 1937 a Chilean Company, Recalcine, was a competitor of Bayer engaged in the sale and distribution of aspirin products under the trade name 'Aliviol.' Sterling and the immediate successor to Leverkusen, I. G. Farben, agreed in 1937 to purchase the business of the said company, the entire purchase price to be advanced by Sterling. It was further agreed that Sterling and the successor to Leverkusen were to own, respectively, a 25% Share and a 75% Share of the business.

 XI

 The business was acquired and was thereupon transferred to a newly organized company, Laboratorios Hegemann y Cia., hereinafter identified as Hegemann. Between 1937 and 1941, Messrs. Pando and Hegemann, as nominees of Sterling, and with the consent and approval of I. G. Farben, were the registered record owners of 75% And 25%, respectively, of the capital stock of the newly organized company.

 XII

 The entire purchase price for the said business was advanced by Sterling. This advance was made pursuant to an agreement under which I. G. Farben's share of the purchase price, equal to 75% Of its share in the business, would be repaid to Sterling out of its share of the profits of the 'Aliviol' business and its share of the profits from the sale of aspirin and aspirin products in Chile under the 1920 contract. It is stipulated by the parties that by 1940, ...


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