Croydon Co., Inc. v. Unique Furnishings, Ltd.

• Decision Date: 11 August 1993
• Docket Number: No. 92-126-CIV-3-H.,92-126-CIV-3-H.
• Citation: 831 F. Supp. 480
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: The CROYDON CO., INC., d/b/a Gaylord Bros., Plaintiff, v. UNIQUE FURNISHINGS, LTD., and Colleen Westover Rabe, Defendants.

831 F. Supp. 480

The CROYDON CO., INC., d/b/a Gaylord Bros., Plaintiff, v. UNIQUE FURNISHINGS, LTD., and Colleen Westover Rabe, Defendants.

No. 92-126-CIV-3-H.

United States District Court, E.D. North Carolina, Fayetteville Division.

August 11, 1993.

F. Jefferson Ward, Jr., Harrington, Ward, Gilleland & Winstead, Sanford, NC, for plaintiff.

David Ernest Bennett, Rhodes, Coats & Bennett, Raleigh, NC, for defendants.

MALCOLM J. HOWARD, District Judge.

This matter is before the court on the defendants' motion to dismiss filed January 4, 1993. The Honorable Alexander B. Denson, United States Magistrate Judge, entered a Memorandum and Recommendation on June 29, 1993, recommending that Count One of the plaintiff's complaint be dismissed for lack of subject matter jurisdiction and that the defendants' motion to dismiss Counts Two and Three be denied. More than ten days have passed since the Magistrate Judge entered his Memorandum and Recommendation and no objections have been filed. Thus, this matter is now ripe for ruling.

The court has fully reviewed the parties' memoranda and supplemental briefs as well as the Memorandum and Recommendation of the Magistrate Judge. The court finds that the Memorandum and Recommendation of the Magistrate Judge is well grounded in law and fact and hereby ADOPTS the Memorandum and Recommendation as its own.

For the reasons stated in the Memorandum and Recommendation, the court finds that it lacks subject matter jurisdiction over Count One of the plaintiff's complaint by operation of 28 U.S.C. § 1498(a). However, Counts Two and Three are properly raised in this court and allege sufficient facts to survive a motion to dismiss for failure to state a claim upon which relief can be granted. Accordingly, the court hereby GRANTS IN PART and DENIES IN PART the defendants' motion to dismiss. IT IS HEREBY ORDERED that Count One of the plaintiff's complaint BE DISMISSED.

MEMORANDUM AND RECOMMENDATION

DENSON, United States Magistrate Judge.

THIS CAUSE comes before the court on Defendants' Motion to Dismiss Plaintiff's complaint. Plaintiff has responded and Defendants have replied. The matter is ripe for disposition. Currently, the case is set for trial during the Honorable United States District Judge Malcolm J. Howard's January 18, 1994, term of court in Fayetteville, North Carolina.

FACTS

The corporate defendant, Unique Furnishings, Ltd, (Unique) is a manufacturer of furniture incorporated under the laws of the state of Wisconsin. Colleen Rabe is the owner of Unique, and also serves as a director and president of the company. Plaintiff Croydon Company, Inc., d/b/a Gaylord Brothers (Gaylord), is a manufacturer of furniture and is a corporation chartered under the laws of the state of New York.

The present lawsuit arises out of a contract entered into between Unique and the United States Government for furniture to be used at the JFKSWC Academic Library on the Fort Bragg Military Reservation. After soliciting bids for the library furniture, the Government awarded the contract to Unique. The furniture subsequently was manufactured and supplied by Unique and is currently being used at the Fort Bragg library.

In Count One of its complaint, Gaylord contends that the library furniture supplied by Unique to the Government infringes upon its exclusive right to use design patent number des. 303,188.¹ In Count Two, Gaylord contends that Unique has violated Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), by supplying library furniture to the Government that is unlawfully similar to its product in that it is likely to cause confusion in the public as to origin of the furniture. In Count Three, Gaylord alleges unfair and deceptive trade practices under both North Carolina common law and pursuant to N.C.Gen.Stat. § 75-1.1.

All three counts arise out of a common nucleus of operative fact, that being Unique's contract to supply the United States Government with library furniture to be used at Fort Bragg and the subsequent execution of that contract. (The contract at issue is included as Exhibit A to Defs.' Memo. in Support of Motion to Dismiss.)

DEFENDANTS' MOTION TO DISMISS COUNT ONE

-A-

The issue presented by Unique's motion to dismiss Count One is whether this or any other federal district court has proper jurisdiction over Gaylord's claim of patent infringement. In its complaint, Gaylord relied on the jurisdiction conferred to district courts by 28 U.S.C. §§ 1331² and 1338(a)³. (Complaint at 2, Para. 4).⁴ Defendants argue that these jurisdictional statutes are trumped by the specific and exclusive jurisdiction conveyed upon the United States Court of Federal Claims⁵ by 28 U.S.C. § 1498(a). Accordingly, they move to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1).⁶

Section 1498(a) provides that:

Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture same, the owner's remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.

For the purposes of this Section, use or manufacture of an invention described in and covered by a patent of the United States by a contractor, a subcontractor, or any person, firm or corporation for the Government and with the authorization or consent of the Government, shall be construed as use or manufacture for the United States.

28 U.S.C. § 1498(a).

-B-

The history of this statute is well-documented in Richmond Screw Anchor Co. v. United States, 275 U.S. 331, 48 S.Ct. 194, 72 L.Ed. 303 (1928). After passing the original act in 1910, Congress amended the statute in 1918. The Supreme Court, through Chief Justice Taft, said:

The purpose of the amendment was to relieve the contractor entirely from liability of every kind for the infringement of patents in manufacturing anything for the government, and to limit the owner of the patent and his assigns and all claiming through or under him to suit against the United States in the Court of Claims for the recovery of his reasonable and entire compensation for such use and manufacture. The word `entire' emphasizes the exclusive and comprehensive character of the remedy provided. As the Solicitor General says in his brief with respect to the act, it is more than a waiver of immunity and affects an assumption of liability by the government.

... The intention and purpose of Congress in the act of 1918 was to stimulate contractors to furnish what was needed for the war, without fear of becoming liable themselves for infringements to inventors or the owners or assignees of patents. The letter of the Assistant Secretary of the Navy, upon which the act of 1918 was passed, leaves no doubt that this was the occasion for it. To accomplish this governmental purpose, Congress exercised the power to take away the right of the owner of the patent to recover from the contractor for infringements.

Id., 275 U.S. at 343-45, 48 S.Ct. at 196-97.

While the war has long since come to a successful end, the statute remains. Even having arrived seventy-five years since the statute was amended, the case at hand comes squarely within its terms. Unique has allegedly violated Gaylord's rights. The patented invention was "used ... by" and "manufactured ... for the United States." Following the explicit language of the statute, it therefore follows that Gaylord's "remedy shall be by action against the United States in the United States Court of Federal Claims" for its "entire compensation for such use and manufacture."

While some legitimate doubt existed in 1910 as to the statute's application to contractors who supplied products to the Government, the 1918 amendment erased it. Chief Justice Taft, in the above quoted passage, thoroughly explained the purpose and effect of the amendment. Regardless of the inapplicability of the historical context, the effect of the amendment is the same today as it was in 1918. Congress took away Gaylord's cause of action against Unique in the district court and replaced it with the exact same cause of action against the Government in the Court of Federal Claims.

-C-

Section 1498(a), quoted supra on page 4, states that "use or manufacture" by a contractor is use or manufacture for the United States so long as it was with the authorization or consent of the government. Gaylord argues that there was no governmental consent to the alleged infringing manufacture and that therefore the statute does not apply.

Gaylord points to an indemnity agreement between the Government and Unique to support its contention that the Government did not consent to Unique's alleged infringing manufacture. Gaylord states that "this indemnity agreement demonstrates the intent of the parties to except application of § 1498." (Pl.'s Memo. at 4.) Gaylord goes further out on a weakening limb by stating that "the Government specifically contracted for owners of any intellectual property rights not to have their remedy against the United States Government." (Pl.'s Memo. at 4.)

There is more than one thing wrong with this argument. The court will point out that "the subject matter jurisdiction of the federal courts is too basic a concern to the judicial system to be left to the whims and tactical concerns of the litigants." Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction 2d § 3522, 67-68. In other words, federal jurisdiction can not be conferred on this court by agreement of the parties. Id. at 66. If the Court of Federal Claims has exclusive jurisdiction pursuant to Section 1498(a), the parties can not by contract defeat the grant of exclusive jurisdiction and vest it in this court.

-D-

Even if the Government and Unique had the power to create jurisdiction for this court, which they do not, Gaylord's contention that the...