Blessings Corporation v. Altman

• Decision Date: 09 April 1974
• Docket Number: No. 73 Civ. 2863.,73 Civ. 2863.
• Parties: BLESSINGS CORPORATION (formerly Associated Baby Services, Inc.), Plaintiff, v. Gustave ALTMAN and Ben Teitzman, Defendants.
• Court: U.S. District Court — Southern District of New York

373 F. Supp. 802

BLESSINGS CORPORATION (formerly Associated Baby Services, Inc.), Plaintiff, v. Gustave ALTMAN and Ben Teitzman, Defendants.

No. 73 Civ. 2863.

United States District Court, S. D. New York.

April 9, 1974.

Sandoe, Hopgood & Calimafde, New York City (John M. Calimafde, Robert A. Schroeder, New York City, of counsel), for plaintiff.

Fitzpatrick, Cella, Harper & Scinto, New York City (Lawrence F. Scinto, Gregory J. Battersby, New York City, of counsel), for defendants.

OPINION

BAUMAN, District Judge.

This is an action brought pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, and 28 U.S.C. § 1338(a), in which plaintiff seeks a determination that defendants' patent is invalid. The defendants have now moved to dismiss, pursuant to Rule 12(b) of the Federal Rules, on two grounds. They contend first, that the instant action is not founded upon an "actual controversy" between the parties within the meaning of the Declaratory Judgment Act and second, that the court lacks subject matter jurisdiction since the amount in controversy is less than ten thousand dollars. The first of these contentions raises an interesting, if familiar, question of patent law; the second, which is utterly frivolous, does not.

On October 24, 1967, an agreement was made between Blessings, Inc., a wholly owned subsidiary of Blessings Corporation,¹ the plaintiff, and Messrs. Gustave Altman and Ben Teitzman, the defendants. Altman and Teitzman are the joint owners of United States Patent No. 3,266,841, an invention felicitously entitled "Protective Cover Having Means for Releasably Securing It to a Surface" and more intelligibly described as a headrest cover of the sort commonly found protecting seats on airplanes, trains, etc. The agreement granted Blessings an exclusive license for the use of the patent in exchange for the payment of certain royalties.

Disagreements subsequently arose between the parties, apparently over the royalties due the defendants. Two arbitration proceedings were thereupon commenced by the defendants in 1972. In the first, the arbitrator, Frank H. Loomis, determined that the defendants were entitled to none of the royalties they sought and entered an award to this effect on July 10, 1972. The second was commenced in November, 1972 between defendants and another subsidiary of Blessings Corporation. There the arbitrator, Francis C. Hand, found the plaintiff liable to the defendants for royalties accruing between April 1, 1971 and August 24, 1972, the date on which plaintiff had terminated the license agreement. In his award, dated April 27, 1973, the arbitrator also directed that an accounting for past royalties take place within sixty days of his decision.

On June 21, 1973 Blessings instituted an action in the Supreme Court, New York County (Index No. 11314/73) to confirm the Loomis award, and on June 26, 1973 defendants commenced a similar action in the same court (Index No. 11492/73) for confirmation of the Hand award. The Loomis award was confirmed by Justice Helman on July 20, 1973. Blessings, however, removed the action seeking confirmation of the Hand award to this court (73 Civ. 2926) and on August 1, 1973 I granted Altman and Teitzman's motion to remand to the state court. Upon remand, Justice Quinn entered an order confirming the Hand award on September 14, 1973.

The instant action, brought by Blessings on June 28, 1973, seeks, inter alia, a determination that defendants' patent is invalid and not infringed by plaintiff's product. Blessings alleges, in an affidavit submitted by John F. Ross, its vice president, that although it has terminated its license with defendants, it still desires to market a headrest cover which it deems outside the scope of their patent. It is further alleged, by Ross, that Blessings "possesses the necessary manpower, knowhow and equipment to manufacture this product and has, in fact, manufactured the product since termination of the license." Blessings has, understandably, been reluctant to offer the product to its customers because it remains uncertain whether it infringes defendants' patent.

I.

In the first branch of their motion to dismiss,² defendants contend that there is no actual controversy between the parties sufficient to sustain jurisdiction under the Declaratory Judgment Act. They argue, in essence, that the parties have been involved in nothing more than a dispute over royalties under a licensing agreement. That dispute apparently has been resolved by arbitration, and defendants claim that they have not threatened plaintiff with an infringement suit subsequently.³ In view of this, defendants contend that no actual controversy now exists, and that Blessings merely seeks an advisory opinion on the validity of their patent.

It is well settled that the Declaratory Judgment Act only permits the federal courts to entertain actual, concrete controversies, and not hypothetical questions. Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 57 S.Ct. 461, 81 L.Ed. 617 (1937). While that may seem simple enough, the distinction between the former and the latter, as our Court of Appeals has noted, is one of degree, to be determined on a case by case basis. Wembley, Inc. v. Superba Cravats, Inc., 315 F.2d 87 (2nd Cir. 1963). In the patent field, the Act has had the salutary effect of preventing patentees from threatening alleged infringers with lawsuits without ever risking a test of the validity of their patent. For this reason, as well as others, our Court of Appeals has liberally construed the "actual controversy" requirement. Wembley, Inc. v. Superba Cravats, Inc., supra.

There appear to be two prerequisites to a finding of an actual controversy in patent cases. First, the patentee (usually the defendant) must have charged plaintiff with infringement or at least threatened an infringement suit, either directly or indirectly. Second, the plaintiff must actually have produced or made substantial preparations to produce the accused article; a vague and unspecific desire to market a product is insufficient. Muller v. Olin Mathieson Chemical Corp., 404 F.2d 501 (2nd Cir. 1968); Wembley, Inc. v. Superba Cravats, Inc., supra; Sweetheart Plastics, Inc. v. Illinois Tool Works, Inc., 439 F.2d 871 (1st Cir. 1971); General Tire & Rubber Co. v. Jefferson Chemical Co., 46 F.R.D. 607 (S.D.N.Y.1969).

A brief survey of the applicable case law in this circuit is sufficient to substantiate Professor Moore's observation that "the `charge of infringement' has been given a very liberal interpretation."<sup>4</sup> 6A Moore's Federal Practice ¶ 57.20. In Muller v. Olin Mathieson Chemical Corp., supra, the court found that such a charge had been adequately established on the following facts. The parties had been engaged in numerous patent interference proceedings over a long period; plaintiffs had received a letter from an American licensee requesting indemnification against any infringement actions defendant might bring against it; defendant had sent plaintiffs' British licensee a letter offering a license and hinting at a charge of infringement. The court noted that "defendant has put plaintiffs in a position where they must either abandon use of their patent or, if they exploit the patent, must run the risk of being liable to defendant for potential damages whenever defendant should see fit to sue for infringement. . . . To deny that a `case or controversy' exists in this situation is to `ignore the realities of business life.'" 404 F.2d at 501, 505.

In Wallace & Tiernan, Inc. v. General Electric Company, 291 F.Supp. 217 (S. D.N.Y.1968), Judge Frankel suggested a similarly broad reading of the "charge of infringement" requirement. In that case it was undisputed that defendant had never charged plaintiff with infringement or contributory infringement, and would make no such charges in the future. But the court rejected the view that "the useful remedy of declaratory relief must always be confined to a plaintiff who has himself been charged or threatened as an infringer." Plaintiff had invested $350,000 in the development of a product the chief potential use of which was in a chemical composition which defendant claimed to be covered by its patent. Under such circumstances, Judge Frankel held that "the plaintiff here is unquestionably hurt by the conduct and asserted legal claims of the defendant. Where the immediately produced result of defendant's announced position is . . . the loss of substantial business by plaintiff, it is `idle to call the injury indirect or remote.'" 291 F.Supp. at 222.

In Broadview Chemical Corp. v. Loctite Corp., 417 F.2d 998 (2nd Cir. 1969), cert. denied, 397 U.S. 1064, 90 S.Ct. 1502, 25 L.Ed.2d 686 (1970), the parties had been engaged in litigation for at least five years concerning the validity of various of the defendant's patents and claims by the plaintiff (usually unsuccessful) that its products did not infringe them. When plaintiff undertook to market a new product and sought a declaratory judgment of noninfringement, the court found the "actual controversy" requirement met by this past history of litigation considered together with several letters from defendant to plaintiff and its customers expressing the view that plaintiff was not capable of preparing a noninfringing product.

The most recent expression of the views of our Court of Appeals can be found in Blackman v. Hadron, Inc., 450 F.2d 781 (2nd Cir. 1971). There, the patentee had originally brought infringement charges against both direct and contributory infringers. The action against the direct infringer had been settled, and by the terms of the settlement "all past infringements were forgiven." This presented to the court the question of whether an actual controversy then remained between the patentee and the contributory infringer. The court conceded that absent direct infringement, no action for contributory infringement can be maintained; nevertheless, it found that "the...