Koratron Company v. Deering Milliken, Inc.

• Citation: 418 F.2d 1314
• Decision Date: 05 November 1969
• Docket Number: No. 23169.,23169.
• Parties: KORATRON COMPANY, Inc., a corporation, Plaintiff-Appellee, v. DEERING MILLIKEN, INC., a corporation, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

418 F.2d 1314 (1969)

KORATRON COMPANY, Inc., a corporation, Plaintiff-Appellee, v. DEERING MILLIKEN, INC., a corporation, Defendant-Appellant.

No. 23169.

United States Court of Appeals Ninth Circuit.

November 5, 1969.

Jay H. Topkis (argued), of Paul, Weiss, Goldberg, Rifkind, Wharton & Garrison, New York City, Morrison, Foerster, Holloway, Clinton & Clark, San Francisco, Cal., for appellant.

Moses Lasky (argued), of Brobeck, Phleger & Harrison, San Francisco, Cal., Lyon & Lyon, Los Angeles, Cal., for appellee.

Before HAMLIN, ELY and HUF STEDLER, Circuit Judges.

HUFSTEDLER, Circuit Judge:

Pursuant to leave granted by this court (28 U.S.C. § 1292(b)), appellant Deering Milliken, Inc. ("Milliken"), appeals from an interlocutory order of the District Court for the Northern District of California denying Milliken's motions to dismiss, to transfer, or to stay the action filed against it by Koratron Company, Inc. ("Koratron").

Milliken contends that venue was improperly laid because the gravamen of Koratron's action is patent infringement for which an action may be brought only "in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business" 28 U.S.C. § 1400(b)) and that the Northern District of California, in which the suit was brought, is not such a district. Koratron replies that its suit is not one for patent infringement, or even an action arising under the patent laws; rather, it is an action founded on a common law tort, and federal jurisdiction rests solely upon diversity of citizenship. Alternatively, Koratron argues that even if the suit is for patent infringement, the record supports the laying of venue in the Northern District of California.

Koratron holds two process patents dealing with the manufacture of permanent press garments. It has licensed some 200 garment makers to practice the patents upon payment of royalties. Milliken manufactures fabrics ("Visa," "Milstar," and "Milliset"), which are sold to garment makers who, in turn, may use the fabrics to make permanent press garments.

In its original complaint, Koratron alleged the following controversy between it and Milliken: Milliken claims that by using its Visa, Milstar, and Milliset fabrics a garment manufacturer can in all other respects follow one of the Koratron process patents without falling within the scope of that patent, which claim Koratron denies; Milliken threatens to tell Koratron's licensees that they can avoid paying royalties to Koratron by using Milliken's fabrics, unless Koratron acknowledges in writing that the use of Milliken's fabrics is outside the scope of the patent; Milliken had already advised one or more of Koratron's licensees to that effect; and Milliken's purpose in these actions was to induce the licensees not to pay royalties to Koratron. Koratron prayed for judgment declaring, inter alia, that the scope of its patent includes the making of garments from the described Milliken fabrics, that Milliken be enjoined from asserting to the contrary, and that it be awarded compensatory damages for its loss of royalties and $5,000,000 punitive damages.

Thereafter Koratron filed an amendment to its complaint to include an after-acquired improvement patent and to add averments that Milliken also claims "that non-licensees of Koratron will escape being guilty of infringement of the patent by using Visa, Milstar or Milliset." (Emphasis added.)

Milliken moved (1) to dismiss the action, (2) to stay it pending adjudication of an action filed in the Southern District of New York by Milliken against Koratron to declare Koratron's patents invalid or, alternatively, not infringed, or (3) to transfer it to the Southern District of New York. Milliken's suit against Koratron was filed one day after Koratron filed this action against Milliken. After the District Court entered its order denying Milliken's motion, Milliken abandoned that part of its motion seeking a dismissal in order to preserve the discovery thus far completed. The New York action has been stayed pending disposition of this appeal.

The central issue is the proper characterization of Koratron's complaint. If it is a "civil action for patent infringement" the narrow venue provisions of section 1400(b) apply; if, on the other hand, the action is either a common law tort claim, triable in the federal courts solely by reason of diversity, or a patent suit, other than an action for infringement, the parties agree that venue is proper in the Northern District of California under the more liberal provisions of section 1391(c). Koratron asserts that its complaint states a good cause of action under California law for interference with contract and for interference with prospective economic advantage. (E.g., Collins v. Vickter Manor, Inc. (1957) 47 Cal.2d 875, 306 P.2d 783; Uptown Enterprises v. Strand (1961) 195 Cal.App.2d 45, 15 Cal.Rptr. 486.) Milliken argues, however, that the substance of Koratron's complaint is contributory infringement under 35 U.S.C. § 271(b): "Whoever actively induces infringement of a patent shall be liable as an infringer." Since the substance and not the form of the complaint is controlling, Milliken argues, the suit should be construed as one for patent infringement.

The appeal presents a novel issue, for the parties have cited no case, and we have found none, in which a patent holder has attempted to avoid the venue provisions of section 1400(b) by waiving its action for contributory infringement and proceeding solely under an interference theory.

Judge Kaufman faced a similar problem in Bradford Novelty Co. v. Manheim (S.D.N.Y.1957) 156 F.Supp. 489, but there the plaintiff had pleaded both an infringement action and a common law action for unfair competition. Defendant moved to dismiss for lack of venue and established that the provisions of section 1400(b) were not met. Plaintiff contended, however, that "its action against Eppy for unfair competition is independently founded on diversity of citizenship and is, therefore, properly brought in this district, § 1400 being inapplicable to common law actions for unfair competition." Because venue was proper for one of the causes of action, plaintiff argued, the court can properly hear the related claim of infringement. Judge Kaufman was not convinced:

"The gravamen of the present complaint is patent infringement; unfair competition, if a separate cause of action at all, being a subsidiary issue dependent on the prior determination of the action for patent infringement. The Supreme Court has gone so far as to conclude that claims of infringement and unfair competition are not separate causes of action at all but are different grounds asserted in support of the same action. Hurn v. Oursler, 1933, 289 U.S. 238, 247, 53 S.Ct. 586, 77 L.Ed. 1148. Since unfair competition can almost always be charged in a patent infringement action, if plaintiff were to prevail in its argument, it would be a simple matter of pleading for a party to evade the venue limitation imposed by § 1400." (156 F. Supp. at 492.)

Just as unfair competition can almost always be charged in a patent infringement action, so too can interference almost always be charged in a contributory infringement action. Because Koratron would have to prove the basic elements of a contributory infringement claim in order to succeed in its tort claim, it must realistically be admitted that the gravamen of the complaint is contributory infringement. The only real difference between the instant case and Bradford Novelty is that Koratron has gone one step further than did the plaintiff in Bradford by omitting altogether the infringement action from its complaint. Although this is "a simple matter of pleading," we hold that it is sufficient to make section 1400 inapplicable.

Our conclusion is compelled by a line of Supreme Court cases beginning in 1850 with the decision of Wilson v. Sandford, 51 U.S. (10 How.) 99, 13 L.Ed. 344 and culminating in 1926 with Luckett v. Delpark, Inc., 270 U.S. 496, 46 S.Ct. 397, 70 L.Ed. 703. In each of the cases in the line, the central question was jurisdictional: Was the action one "arising under" the patent laws and thus triable exclusively in the federal courts under the statutory predecessor to 28 U.S.C. § 1338(a).¹ The Court consistently said "No," despite the fact that in each instance the scope or the validity of a patent, or both, was directly in issue. According to these decisions, characterization of the action as a patent or nonpatent suit within the meaning of section 1338 (a) turns on the form in which the plaintiff has chosen to cast his complaint: "The plaintiff is absolute master of what jurisdiction he will appeal to; * *. Jurisdiction generally depends upon the case made and relief demanded by the plaintiff; * * *." (Healy v. Sea Gull Specialty Co. (1915) 237 U.S. 479, 480, 35 S.Ct. 658, 659, 59 L.Ed. 1056; see also The Fair v. Kohler Die & Specialty Co. (1913) 228 U.S. 22, 25, 33 S.Ct. 410, 57 L.Ed. 716.)

The plaintiffs in Luckett and Wilson, although adding infringement counts, chose to frame their actions as ones in contract and to seek contract relief primarily. In American Well Works Co. v. Layne & Bowler Co. (1916) 241 U.S. 257, 36 S.Ct. 585, 60 L.Ed. 987, the action sounded in tort, although plaintiff could just as easily have sued for infringement. The plaintiff initiated the action in state court, charging that it had a valid patent on a certain...