The opinion of the court was delivered by: SCHEINDLIN
SHIRA A. SCHEINDLIN, U.S.D.J.:
Plaintiff Union Carbide Corporation ("UCC"), both individually and as successor in interest to and on behalf of Seadrift Polypropylene Company ("Seadrift"), has sued 17 defendants on various grounds. Generally, the Complaint
alleges violations of the antitrust laws, as well as various common law claims relating to certain defendants' alleged breach of agreements between them and UCC. The defendants are aligned in three groups, and each group has moved to dismiss portions of the Complaint. The groups are as follows. "Shell/Montell" refers to defendants Montell N.V.; Montell Polyolefins; Montell North America Inc.; Montell USA Inc.; and Montell Finance USA, Inc. (the "Montell" defendants), as well as Royal Dutch Petroleum Company; The Shell Transport and Trading Company, p.l.c.; Shell Petroleum N.V.; The Shell Petroleum Company Ltd.; Shell Petroleum Inc.; Shell International Chemical Company Ltd.; Shell Internationale Research Maatschappij B.V. ("SIRM"); and Shell Canada Ltd. (the "Shell" defendants). The Shell/Montell defendants submitted joint briefs on the motion. Shell Oil Company ("SOC") and Shell Polypropylene Company ("SPC") joined in the briefing of this motion. Finally, defendants Montedison S.p.A. ("Montedison") and Technipol S.r.L. ("Technipol") submitted joint briefs. The relationships among these companies are detailed in PP 7-24 of the Complaint. This Opinion addresses these relationships only to the extent necessary to resolve the motions to dismiss.
I. Standard for Deciding a Motion Under Rule 12(b)(6)
In deciding a motion to dismiss for failure to state a claim, "the Court's function is merely to assess the legal sufficiency of the complaint rather than to weigh the evidence that might be presented at a trial." Reich v. Glasser, 1996 U.S. Dist. LEXIS 6335, 95 Civ. 8288, 1996 WL 243243, at *1 (S.D.N.Y. May 10, 1996) (citing Festa v. Local 3 Int'l Bhd. of Elec. Workers, 905 F.2d 35, 37 (2d Cir. 1990)). Therefore, the Court must accept as true the factual allegations contained in the complaint. See Cohen v. Koenig, 25 F.3d 1168, 1171 (2d Cir. 1994). All reasonable inferences must be drawn in favor of the non-moving party on such a motion. See Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991). A "complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957).
The following recitation of relevant facts is drawn from UCC's Third Amended Complaint. The absence of the phrase "UCC alleges" at the outset of each paragraph should not be taken as any indication that the Court endorses or adopts the facts set forth herein.
A. Polypropylene and Polypropylene Technology
Historically, only a small number of firms have developed polypropylene process technology, polypropylene catalysts, or related catalyst use technology. There are significant barriers to entry into these lines of business, including the complexity of the various technologies involved, certain patent barriers, and substantial research and development costs, all of which involve significant sunk costs. Many producers of polypropylene do not have their own proprietary process and catalyst technology, and must obtain by license the technology necessary to manufacture polypropylene. Id. P 28.
B. The Development of Current Generation Process and Catalyst Technology
Since 1975, the polypropylene process and catalyst technologies have improved significantly. The most recent development, "Current Generation Process and Catalyst Technology," is more efficient and less costly per unit of output than earlier technologies and requires less equipment and capital expenditure by the resin manufacturer. Cplt. P 29. Companies who wish to construct and operate new polypropylene resin plants ordinarily have no economically feasible alternative but to enter into a "Total Package License" for all of the elements necessary to manufacture polypropylene (including Current Generation Catalyst and Process Technology, plant design, and rights to purchase and use Current Generation Polypropylene Catalysts). Thus, there is no longer a demand for separate process and catalyst technology licenses for new plants. Id. P 30.
Montedison and Mitsui Petrochemical Industries, Ltd. ("Mitsui") were the first firms to develop, commercialize, and license a Current Generation Catalyst and Process Technology. Id. PP 31-33. As of the 1980s, no other prospective licensor had developed both a Current Generation Catalyst and a Current Generation Process Technology. Id. P 33. Although UCC had developed a Current Generation Process Technology called UNIPOL, it needed to possess a Current Generation Catalyst in order to successfully enter the polypropylene technology licensing business. Id. P 35. After considering the lengthy period it would take to develop a Current Generation Catalyst and related technology, UCC decided to seek a co-venturer that already possessed a Current Generation Catalyst and associated catalyst technology that could be adapted to function with UCC's UNIPOL process technology. Id. P 38. Likely candidates included Hercules, Inc., Stauffer Chemical Company ("Stauffer"), and Shell Oil Company ("SOC"). Id. P 34. Mitsui was effectively eliminated as a possible catalyst co-venturer because of a prior research and development agreement it had made with Montedison. Id. P 31.
C. Montedison's Efforts To Maintain Its Dominant Position In the Licensing of Current Generation Technology
In an attempt to acquire and maintain a dominant position in the licensing of Current Generation Catalyst and Process Technology, Montedison took various actions that effectively eliminated some of the most likely catalyst partners for UCC. Cplt. P 40. For example, in August 1982, UCC and Hercules agreed to establish a program that would permit the parties to evaluate the compatibility of Hercules' Current Generation Catalyst and catalyst use technology. Id. P 41. However, in 1983, Hercules and Montedison formed a company called Himont, and shortly thereafter, Hercules discontinued work under the UCC catalyst evaluation agreement because of a likely competitive conflict with Himont. Id. PP 42-43.
A similar fate met UCC's joint development discussion with Stauffer. In 1984, Himont, Mitsui, and Stauffer entered into an agreement for the stated purpose of resolving possible patent infringement issues relating to polypropylene catalysts. Id. P 47. After entering into this agreement, Stauffer stopped developing and attempting to market its own Current Generation Catalyst and terminated its joint development discussions with UCC. Id. P 48.
In December 1981, UCC and SOC entered into a confidential polypropylene catalyst evaluation agreement, similar to those that UCC had entered into with Hercules and Stauffer. Cplt. P 49. In December 1983, UCC entered into a long-term cooperative arrangement with SOC (the "UCC/Shell Venture") for the commercial development and licensing of Total Package Licenses to third parties that would include UCC's UNIPOL Current Generation Process Technology and SOC's SHAC Current Generation Catalyst. Id. P 50. The parties also formed a partnership under Texas law, Seadrift Polypropylene Company ("Seadrift"), in order to construct, own and operate a world-scale demonstration polypropylene resin plant (the "Seadrift plant"). Id. PP 51, 64.
UCC and SOC entered into a number of related agreements in the course of establishing and operating the UCC/Shell Venture. These agreements include (1) the Cooperative Undertaking Agreement ("CUA"), (2) the Seadrift Partnership Agreement, (3) the Catalyst Sales Contract, and (4) the Polypropylene Conversion Agreement. Id. P 53.
The CUA represents the basic agreement defining the duties and obligations of UCC and SOC with respect to the UCC/Shell Venture, particularly with regard to provisions protecting trade secrets both while the CUA is in effect and after termination or expiration of the CUA. Id. P 54. Part of the CUA calls for SOC to provide catalysts to the partnership for production of polypropylene resin at the Seadrift plant at "cost plus a reasonable return on capital." Id. P 56 (citing CUA). The CUA also provides that if SOC terminates the agreement, SOC "will not for a period of ten (10) years after termination undertake alone or with any third party the development of a gas phase fluid bed process for the manufacture of PP Resin or polyethylene." Id. P 62(d) (citing CUA).
The Seadrift Partnership Agreement embodies the terms of the UCC/Shell partnership to construct, own and operate the Seadrift plant. Id. P 64. The Catalyst Sales Contract formalizes SOC's rights and obligations in regard to its provision of catalysts to the Seadrift plant for use in producing polypropylene. Id. P 66. SOC also entered into the Polypropylene Conversion Agreement (also known as the "Toll Conversion Agreement") to formalize SOC's rights and obligations regarding the marketing and sale of polypropylene resin manufactured at the Seadrift plant. Id. P 68.
E. Montedison's and Himont's Efforts to Curtail Total Package Licensing Competition From the UCC/Shell Venture
In 1985, when UCC and SOC began to market the UCC/Shell Commercial Process and Total Package License in competition with Himont and Mitsui, UCC and SOC encountered significant difficulties as a result of Montedison's and Himont's conduct. In 1985 and 1986, Montedison, Himont and Mitsui threatened to sue SOC and its licensees for patent infringement, which deterred a number of potential licensees from using the UCC/Shell Venture's Current Generation Process and Catalyst Technology and delayed for almost two years the effective entry of the UCC/Shell Venture into the Total Package Licensing Business. Cplt. P 70.
UCC (with the backing of SOC) informed Himont, Montedison and Mitsui that it was considering litigation challenging their actions under the antitrust laws of the United States. Thereafter, Himont, Montedison, and Mitsui entered into negotiations with UCC and SOC in an effort to resolve the dispute. The parties ultimately executed a settlement agreement whereby UCC agreed to waive its right to bring an antitrust action against Himont, Montedison and others in return for their dropping patent claims against the manufacture, use, and licensing of the SHAC catalyst. UCC also provided Himont with a nominal royalty on polypropylene resin sales by UCC/Shell Venture licensees. Id. P 71.
F. The Success of the UCC/Shell Venture in Restraining Himont's Dominance of the Total Package License Market
G. Catalyst Research and License Agreement with SIRM, and RDS' Plans to Expand its Polypropylene Resin Production Capacity with UNIPOL Technology
In January 1988, UCC, SOC and SIRM (the research organization owned by the RDS Group) entered into a tripartite research agreement pursuant to which the parties agreed to cross-license the fruits of their catalyst technology research. Cplt. PP 76-77. One month later, UCC and SIRM entered into a Polypropylene License Agreement. Under this agreement, UCC granted SIRM a non-exclusive license to use the UCC/Shell Commercial Process and allowed SIRM to extend that right to use and disclose the commercial process to other RDS Group companies (the "RDS license"). Id. P 78. During negotiations regarding the RDS license, RDS told UCC it intended to use UNIPOL in all new RDS impact co-polymer plants. Id. From 1987 through mid-1991, RDS conducted a number of polypropylene strategy reviews that recommended using UNIPOL in specific new RDS plants. Id. PP 80-81.
H. Efforts to Expand the UCC/Shell Venture
As of early 1990, the Seadrift plant had been operating for four years, but its production capacity was limited to 90,000 metric tons. SOC had disposed of its Woodbury, New Jersey manufacturing plant in the late 1980s. As a result, its only remaining polypropylene production capacity was its half interest in the Seadrift plant and its Norco plant (production capacity: 135,000 metric tons). Cplt. P 84. UCC and SOC recognized that they needed direct involvement with the polypropylene resin market in order to be competitive. They also realized that the revenues earned from catalyst production and licensing alone could not support the research and development necessary to maintain a competitive edge. Id. P 85.
RDS, meanwhile, had also recognized that the UCC/Shell Venture required more investment in research and development, as well as in polypropylene resin production capacity, to remain competitive. RDS was concerned that the UCC/Shell Venture's licensed technology was vulnerable in the long run because UCC and SOC did not have extensive first-hand experience in the polypropylene market. Id. P 86. In response to these forecasts, SOC embarked upon a new strategy in 1989 to increase polypropylene production. SOC intended to become a "top tier" player in the North American polypropylene resin market by the mid-1990s. Id. P 87.
In furtherance of this goal, UCC and SOC planned an expanded joint venture, which UCC referred to as "Nautilus." Under the proposal, each party was to contribute capital and services in order to achieve a 50/50 interest in the new venture.
SOC and UCC also planned to contribute additional capital sufficient to allow the construction of two major UNIPOL polypropylene plants with 200,000 metric tons of capacity each by the mid-1990s, in time to meet the next high cycle in North American polypropylene demand. Id. P 88. As part of this proposed expanded venture, on March 12, 1990, SOC and UCC entered into a six-month Disclosure and Secrecy Agreement that enabled the parties to exchange confidential information. Over the next six months, the parties exchanged proposals addressing various issues relating to Nautilus, and began exchanging drafts of the documents necessary to establish the venture.
Id. P 89. On September 13, 1990, SOC and UCC extended the Disclosure and Secrecy Agreement until March 12, 1991, and continued to meet and exchange information regarding Nautilus. Id. P 90.
Meanwhile, Shell Canada was also reassessing its polypropylene resin strategy, and concluded that it would be in a good position to service the northeastern United States if it could manage to build a new low-cost UNIPOL plant. Id. P 91. In March 1991, during discussions between SOC and Shell Canada, a Shell Plastics Business Center executive indicated that the expanded UCC/Shell Venture could provide an avenue for equity participation by Shell Canada, as well as an alternative means for Shell Canada to obtain UNIPOL technology. Id. P 92. On March 14, 1991, SOC and UCC extended the Nautilus Disclosure and Secrecy agreement for an additional six months. On May 14, SOC and UCC agreed to extend the coverage of their secrecy agreement to permit SOC to disclose to Shell Canada confidential information from UCC. Id. PP 92-93.
In April 1991, the chief SOC negotiator for the Nautilus project reported in a status update to SOC executives that progress was being made toward resolving the remaining key issues. Id. P 93. However, in June 1991, while the Nautilus negotiations were proceeding, a senior SOC executive notified a senior UCC executive that Montedison had approached RDS and SOC about a worldwide RDS/Himont joint venture and that both RDS and SOC were interested. SOC stated that because of Montedison's expressed interest, it wanted to suspend the Nautilus negotiations for a few months. In spite of SOC's unilateral suspension of the Nautilus discussions, on June 27, 1991, UCC reaffirmed to SOC that UCC was still very interested in Nautilus. Id. P 94.
I. Montedison's Scheme to Eliminate Competition from the UCC/Shell Venture
1. Montedison's Situation as of June 1991
Before Montedison approached SOC, Montedison's Himont subsidiary was the leading polypropylene manufacturer in the world. Cplt. P 95. However, due to a low cycle in the industry in the early 1990s, Montedison faced financial difficulties and a shrinking worldwide market for polypropylene resin. Id. P 97. The proposed UCC/Shell Venture licensing program threatened to jeopardize Montedison's commercial advantage by introducing the Current Generation Process and Catalyst Technology into competitors' polypropylene production facilities. Id. Montedison hired two consulting firms in 1990 whose findings concluded that UCC's aggressive licensing practices posed a serious threat to Himont's interests in polypropylene production. Id. PP 99-104.
2. Initial Discussions of Project Sophia
Montedison initially sought to disrupt the UCC/Shell Venture by inducing UCC to align with Montedison. Cplt. P 106. After UCC rejected Montedison's approach, but before SOC suspended the Nautilus negotiations, Montedison contacted RDS and SOC about a worldwide venture in which they would combine their respective polyolefins businesses. Id. Beginning in July 1991, representatives of RDS, SOC and Montedison began to discuss a possible venture, referred to as the "Sophia" project. Id. P 107. SOC allegedly told Montedison about its business venture with UCC, as well as the Nautilus proposal. Id. P 109. In December 1991, a subsidiary of RDS, a subsidiary of Montedison, and SOC entered into a Letter of Intent and Secrecy Agreement in connection with Sophia. The existence of this agreement was not disclosed to UCC. As a result of the Sophia discussions, SOC notified UCC that it was terminating the Nautilus discussions in December 1991. Id. P 110.
On July 30, 1992, SOC, RDS and Montedison entered into a Memorandum of Understanding regarding the "partial merger" of their worldwide polyolefins business into the Sophia venture.
Cplt. P 118. The parties entered into this understanding in spite of a substantial risk of antitrust violations in both Europe and the United States. Id. PP 116-117. UCC was not informed of the existence of this Memorandum between SOC, RDS and Montedison. Id. P 118.
UCC finally became aware of a possible venture between SOC, RDS and Montedison via a letter from SOC dated August 5, 1992. Id. P 119. SOC's letter indicated a desire to negotiate with UCC regarding the termination of the CUA. SOC suggested modifying the CUA to give SOC an option to terminate the agreement so that it could participate in the joint venture between RDS and Montedison without incurring the obligations the CUA's termination provisions would impose. Id. Believing that SOC's proposal would leave UCC in a substantially weaker position in the market than if the venture were continued, UCC rejected SOC's proposal. Id. P 123.
4. The RDS/Montedison Announcement of a Memorandum of Understanding
On September 17, 1992, while SOC was attempting to disentangle itself from the CUA, RDS and Montedison announced that they had signed a Memorandum of Understanding to evaluate worldwide integration of their polyolefins businesses. Cplt. P 124. On the same day, SOC issued a news release announcing that the proposed RDS/Montedison enterprise would not include the UCC/Shell Venture, and that SOC's obligations under the UCC/Shell Venture would remain unchanged. SOC still did not disclose to UCC that SOC had signed the Memorandum of Understanding announced by Montedison and RDS. Id. In March 1993, after holding discussions aimed at reassuring the UCC/Shell Venture's licensees that SOC would honor its obligations, SOC issued a "Holding Statement," restating its commitment to the UNIPOL technology and to UCC/Shell licensees. Id. P 125.
5. The Montell Scheme as Originally Announced, and as Modified to Meet EC Concerns
Nine months later, in December 1993, RDS and Montedison announced that they had signed an agreement to combine major portions of their polyethylene and polypropylene business into a joint venture company, which was later named "Montell." Cplt. P 126. Under the agreement, RDS would own 100 percent of SOC and would have control over Montell. In sum, the venture contemplated RDS controlling the two leading competitors in the licensing of Total Package Licenses and in catalyst research and development. Id. P 127. This structure was opposed by the European Community (EC). In response, RDS and Montedison proposed in the Spring of 1994 that the UCC/Shell Venture be dissolved to resolve competitive concerns. However, SOC and UCC were unable to negotiate a resolution. In May 1994, RDS and Montedison offered to form a separate entity, known as "Technipol," to license Montedison's Current Generation Catalyst and Process Technology (Spheripol) to third parties. These licenses would be offered in competition with the UNIPOL/SHAC licenses offered by the UCC/Shell Venture. Id. P 128.
6. The Montell Scheme as Modified by the Proposed FTC Consent Order
On January 11, 1995, the FTC proposed a Consent Order, pursuant to which SOC would have at least six months to divest its polypropylene assets to UCC or an independent party. Cplt. P 129. Further, during the period prior to divestiture, SOC was required to form a separate subsidiary, free from SOC's control, to own and operate the SOC polypropylene assets to be divested. In response, SOC formed Shell Polypropylene Company (SPC), and on February 28, 1995, SOC transferred its polypropylene-related businesses (and purported to assign its rights to and obligations under the CUA) to SPC. Montell became operational on March 31, 1995. Id. P 130.
J. Actions by SOC and RDS to Weaken Competition Involving the UNIPOL/SHAC Technology
In addition, SOC took other actions which weakened competition in the Total Package License market. For example, in violation of the CUA, SOC attempted to establish a separate business for the recycling of titanium tetrachloride, a by-product of catalyst production. The result was that SOC allegedly received a return on its ...