Business Trends Analysts v. Freedonia Group, Inc.

• Decision Date: 05 January 1987
• Docket Number: No. 86 Civ. 3540 (EW).,86 Civ. 3540 (EW).
• Citation: 650 F. Supp. 1452
• Parties: BUSINESS TRENDS ANALYSTS, Plaintiff, v. The FREEDONIA GROUP, INC. and the Freedonia Group, Incorporated, Defendants.
• Court: U.S. District Court — Southern District of New York

650 F. Supp. 1452

BUSINESS TRENDS ANALYSTS, Plaintiff, v. The FREEDONIA GROUP, INC. and the Freedonia Group, Incorporated, Defendants.

No. 86 Civ. 3540 (EW).

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

January 5, 1987.

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Moses & Singer, New York City, for plaintiff; Stanley Rothenberg, David Rabinowitz, Jules F. Simon, of counsel.

Donovan Leisure Newton & Irvine, New York City, for defendants; Daniel R. Murdock, James L. Stengel, Jeffrey A. Conciatori, of counsel.

EDWARD WEINFELD, District Judge.

Plaintiff Business Trends Analysts ("BTA") brings this action against defendants The Freedonia Group, Inc. and The Freedonia Group, Incorporated (collectively "TFG"), alleging copyright infringement, misappropriation of trade secrets, inducement of employees' breach of fiduciary duties and duty of good faith and loyalty, misidentification of goods in interstate commerce, and unfair trade practices under New York law. BTA moves for preliminary injunctive relief and TFG cross-moves to dismiss pursuant to Fed.R.Civ.P. 12(b) for failure to state a claim upon which relief can be granted, for lack of in personam jurisdiction, and for lack of venue in this district.

BTA and TFG are consulting companies that produce industry analysis reports. Such reports present statistics concerning sales of products and services in domestic and international markets and predict both the demand for the products or services and the likely performance of individual firms. One of the first companies to enter this business was Predicasts, Inc., ("Predicasts") not a party to the present action. In 1984, after roughly 25 years of producing and marketing these reports, Predicasts ceased that portion of its operations. By an agreement effective January 1, 1985,¹ Predicasts granted plaintiff BTA an exclusive license to distribute its existing series of industry studies and to prepare and distribute derivative works.

Defendant TFG was formed in 1982 by William Weiss, who had been employed by Predicasts since its formation in 1960. In April 1982, when he was president of Predicasts' Research Group, his employment agreement was terminated by mutual consent and he signed a non-competition agreement which by its terms expired on November 30, 1982. There is no claim of violation of this agreement. In 1983 he organized The Freedonia Group, Inc. (later becoming The Freedonia Group, Incorporated) and in 1984, when Predicasts disbanded its Research Group, he hired several former Predicasts employees who had been terminated by Predicasts as a result of the dissolution. Thereafter, TFG began producing and distributing industry studies in direct competition with Predicasts' studies, which, after January 1, 1985, were marketed exclusively by plaintiff.

Plaintiff's first claim alleges that defendant's Industry Study 113: Robotics ("the TFG study") infringes the copyright on Predicasts' Study 3547, Robotics (Markets and Competitors) ("the BTA study"), presently marketed by BTA under its exclusive license. The second claim alleges that TFG has misappropriated and is using the trade secrets of Predicasts in the form of Predicasts' customer and prospect lists and sales records. The third and fourth claims allege that TFG induced Predicasts employees to appropriate proprietary information and join TFG and thereby breach their common law duties to Predicasts. Plaintiff's fifth claim is that defendant's use of the common law trademark PREDICASTS in its own promotional materials has been misleading as to the origin of TFG's products, in violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Plaintiff's sixth claim is that TFG has violated state law of unfair competition. Finally, plaintiff's seventh claim is that TFG's use of the PREDICASTS name has violated New York's Anti-Dilution Statute.

The plaintiff, in addition to claims for damages and an accounting, seeks preliminary and permanent injunctive relief barring (1) infringement of BTA's rights under copyright in the Predicasts Robotics Study; (2) publication or sale of TFG's robotics study or any study confusingly similar to the Predicasts line of studies; (3) the use of trade secrets or proprietary information originating with Predicasts; (4) unfair competition with BTA or misappropriation of the goodwill in the name "Predicasts" or in BTA's line of industry studies published under that name. Plaintiff now moves for a preliminary injunction. Defendant, opposing such motion, also moves to dismiss plaintiff's complaint for lack of personal jurisdiction, improper venue, and failure to state a claim.

I. TFG's Motion to Dismiss

A. Personal Jurisdiction

At this pleading stage of the litigation, plaintiff BTA need only make a prima facie showing that this Court has personal jurisdiction over the defendant.² BTA bears this burden separately with respect to each claim it asserts.³ N.Y.C.P. L.R. § 301 et seq. provides the standards for personal jurisdiction with regard to all of plaintiff's claims, since federal courts must determine questions of personal jurisdiction in accordance with the laws of the state in which they sit, not only where subject matter jurisdiction is founded in diversity,⁴ but also where, as in the instant case, jurisdiction over some claims is founded on the presence of federal questions.⁵

TFG is an Ohio corporation, and its only office is in Cleveland Heights, Ohio. It does not maintain an office, mailing address, or telephone listing in New York, nor does it own or lease any real property here. Nine percent of the 28,000 names on TFG's master mailing list are in New York, and one of the 35 copies sold of TFG's robotics study has been shipped to a customer in New York. TFG also has an arrangement with FIND/SVP, an independent contractor located in New York City, which accepts and places orders for TFG's studies in return for a commission.⁶

It is undisputed that defendant has not engaged in a systematic and continuous course of business in New York that would satisfy the "doing business" test of N.Y.C.P.L.R. § 301.⁷ Personal jurisdiction for several of plaintiff's claims, however, may be grounded on New York's long-arm statute, specifically, N.Y.C.P.L.R. § 302(a)(2), which applies where a defendant "commits a tortious act within the state" of New York.⁸ Copyright infringement,⁹ violation of § 43(a) of the Lanham Act,¹⁰ violation of New York's anti-dilution statute,¹¹ and the use of misappropriated trade secrets in the production or sale of a product¹² are all commercial torts that are deemed to take place at the point of consumer purchase. An actual sale is not necessary to establish personal jurisdiction,¹³ and the tortious acts may be performed directly by the defendant¹⁴ or through an agent, who may be an independent retail merchant.¹⁵ Given TFG's sale of the robotics study to a New York customer and its solicitation of sales in New York by direct mail and through FIND/SVP, BTA has alleged TFG's commission of each of the above-mentioned torts in the state of New York. In each case, the plaintiff's cause of action arises from the defendant's attempts to sell its products in New York, so that the nexus requirement of § 302(a) — that the cause of action arise from the acts of the defendant that form the basis for personal jurisdiction — is satisfied. Thus, adequate contacts exist to establish personal jurisdiction over TFG under § 302(a)(2) for purposes of claim one, the copyright claim; claim two, insofar as it alleges misuse of trade secrets; and claims five, six, and seven, alleging violation of § 43(a) of the Lanham Act, unfair competition, and violation of New York's anti-dilution statute.

Plaintiff's claims three and four, however, in no way arise from defendant's contacts with New York. These claims allege that TFG, a corporation located in Ohio, induced employees of Predicasts, also in Ohio, to breach duties to Predicasts. Because any such inducement took place entirely in Ohio, these causes of action do not arise from New York contacts and fail to meet the nexus requirement of § 302(a), which requires that the "cause of action arise from ... the acts enumerated" as the basis for personal jurisdiction.¹⁶ The same is true of BTA's second claim, insofar as it alleges misappropriation of trade secrets. Any misappropriation from Predicasts took place entirely in Ohio and did not arise from TFG's contacts with New York.¹⁷

B. Venue

Venue over BTA's copyright claim is governed by 28 U.S.C. § 1400(a), which provides that suits relating to copyrights "may be instituted in the district in which the defendant or his agent resides or may be found." Since "may be found" has been held to require no more contact than is required by a state's long-arm statute,¹⁸ the propriety of venue on the copyright claim follows from the above discussion of contacts with New York.

Venue over BTA's remaining claims is governed by the general federal venue statute, 28 U.S.C. § 1391(b), which states that:

A civil action wherein jurisdiction is not founded solely on diversity of citizenship may be brought only in the judicial district ... in which the claim arose....

The venue statutes are designed to protect defendants, in the case of corporations, from having to litigate in areas where they do not have "significant activities."¹⁹ Under the standard applied in this district, the "weight of contacts" of the defendant with regard to the action are assessed, and venue is proper in a district if a "substantial" part of the claim arose there.²⁰ A substantial part of plaintiff's unfair competition claims arose in this district, as evidenced by the fact that the defendant solicits in New York, with 9% of its mailing list — up to 2,250 addresses — being New York addresses and by the fact that it has an independent contractor in New York City selling its products.²¹ The parties, perhaps because they have not conducted discovery on the issue, have not presented argument on the...