Gammon, Inc. v. Lemelson
| Decision Date | 26 October 1977 |
| Docket Number | Civ. A. No. 75-2168. |
| Citation | 442 F. Supp. 211 |
| Court | U.S. District Court — District of New Jersey |
| Parties | GAMMON, INC., a California Corporation, doing business as Gammon Games, Plaintiff, v. Jerome H. LEMELSON and Synergistics Research Corp., a New York Corporation, Defendants. |
Katzenbach, Gildea & Rudner by Phillip E. Griffin, Trenton, N. J., for defendants-petitioners, Lemelson and Synergistics.
Smith, Stratton, Wise & Heher by John N. Beidler, Princeton, N. J., for respondent Racinelli.
Madden & Madden by James J. Madden, Haddonfield, N. J., for respondent Hansen.
This dispute centers on the validity of two patents, U.S. Pat. Nos. 3,032,345 and 3,857,566, held by Synergistics Research Corporation, a New York company, and Jerome H. Lemelson, a resident of New Jersey. The patents purport to protect the interests of Synergistics and Lemelson in certain types of "dart" games. Rather than employing traditional darts, however, the games in question use material-covered balls which adhere to boards covered with flannel.
This action was originally brought by Gammon, Inc., a defunct California corporation, against Synergistics and Lemelson. Gammon sought a judgment declaring U.S. Patents Nos. 3,032,345 and 3,857,566 invalid. Synergistics and Lemelson counterclaimed for patent infringement, trademark infringement, and unfair competition. This Court's subject matter jurisdiction is based on its diversity and patent powers. 28 U.S.C. §§ 1332, 1338.
On March 1st, 1977, this Court entered an order dismissing Gammon's complaint with prejudice, dismissing Synergistics' and Lemelson's counterclaim for damages without prejudice, and granting Synergistics and Lemelson a default judgment on their counterclaim for injunctive relief. On May 16th, 1977, this Court issued a temporary restraining order preventing Ennio Racinelli, the former president of the now defunct Gammon, and the John N. Hansen Co., a California corporation which purchased the assets of Gammon, from violating the March 1st injunction. On May 20th, 1977, this Court held a hearing on Synergistics' and Lemelson's motions to hold Racinelli in contempt of the March 1st order and to enjoin Hansen from future violations of the March 1st order. By August 29th, 1977, the parties had submitted proposed findings of fact, conclusions of law, and supporting memoranda. These two motions are presently before the Court for decision.
Based on the testimony elicited at the May 20th hearing, the parties' proposed findings of fact, and the other documents submitted in the case, the Court finds the following relevant facts to be established.
In early 1975, Gammon obtained a $250,000 loan from the American State Bank, secured by the inventory and equipment of Gammon (Transcript of May 20, 1977, hearing, at 107; hereinafter cited as Tr.). In the summer of 1976, approximately six months after instituting the present suit, Gammon defaulted on the loan (Tr. 108). Hansen purchased the assets of Gammon from the Bank on September 24th, 1976 (Tr. 58-60, 65). Hansen continued to manufacture and sell the Gammon games infringing on the patents of Synergistics and Lemelson (Tr. 65-66, 70-71).
Prior to its acquisition of Gammon's assets in September of 1976, Hansen knew of litigation involving the disputed patents. In early 1976, Hansen, as a seller of Gammon games, was sued by Synergistics in the United States District Court for the Southern District of California (Tr. 6, 73). That suit was ultimately dismissed without prejudice (Tr. 6). Hansen also knew that Gammon had filed the present action in this Court (Tr. 72). Hansen, on the advice of counsel, decided not to pursue the Gammon litigation pending in this Court (Tr. 73-75). It is unclear whether Hansen knew, at the time of this decision, that Synergistics and Lemelson had filed counterclaims in the Gammon litigation (Tr. 72-79).
On January 21st, 1977, approximately four months after Gammon went out of business, Gammon's attorneys moved for an order relieving them as counsel for Gammon. On March 14th, 1977, this Court signed an order relieving the attorneys as counsel for Gammon retroactively to February 22nd, 1977. The order granting Synergistics and Lemelson a default judgment on their claim for injunctive relief was filed on March 1st, 1977. Thus, at the time of the default judgment, Gammon was not represented by counsel in this action.
Prior to being summoned to appear at the May 20th, 1977, contempt hearing, neither Hansen nor Racinelli had actual knowledge of the injunction granted on March 1st (Tr. 21, 112-13, 132-33).
During the week of May 15th, 1977, Hansen attended the New York Gift and Stationery Show. While at the trade show, Hansen exhibited the former Gammon game which this Court, in its March 1st default judgment, found to infringe upon Synergistics' and Lemelson's patents (Tr. 80). Racinelli, as a partner in the firm of Response Marketing, also attended the New York trade show (Tr. 81). While Racinelli was seen at the Hansen display a number of times, he was not acting on Hansen's behalf at the trade show (Tr. 93-94).
Racinelli, as the president of Gammon games, is bound by the injunction issued by this Court on March 1st, 1977. Fed. R.Civ.P. 65(d). Racinelli cannot be held in contempt, however, unless he had notice of the injunction. The United States Court of Appeals for the Third Circuit has stated that before a person may be held in contempt for violating an injunction, "it must be proved that the alleged contemnor had knowledge of the order which he is said to have violated". In re Rubin, 378 F.2d 104, 108 (3d Cir. 1967). Accord, e. g., Wilson v. North Carolina, 169 U.S. 586, 600, 18 S.Ct. 949, 42 L.Ed. 873 (1898); In re Fidelity Mortgage Investors, 550 F.2d 47, 51 (2d Cir. 1976), cert. denied, 429 U.S. 1093, 97 S.Ct. 1107, 51 L.Ed.2d 540 (1977).
As this Court found above, see text at page 213, supra, Racinelli, at the time of the alleged violation, had no actual knowledge of the injunctive order granted on March 1st. In an attempt to avoid the effect of this fact, Synergistics and Lemelson assert, without the benefit of any authority, that "constructive knowledge" is a sufficient basis for a finding of contempt. Memorandum of Petitioners Synergistics and Lemelson in Support of Their Proposed Conclusions of Law, at 11. Synergistics and Lemelson argue that Racinelli had "constructive knowledge" because the order relieving Gammon's counsel was not entered until March 14th. Thus, Synergistics and Lemelson argue, Racinelli was represented by counsel when the order was entered on March 1st. Id. at 10-11.
Whether "constructive knowledge" is a sufficient basis for holding a person in contempt is, at best, questionable. See 11 C. Wright & A. Miller, Federal Practice and Procedure § 2956, at 557-59 (1973). In this case, however, even if such notice could be sufficient, Racinelli cannot be said to have received constructive notice of the March 1st order. The attorneys appearing in this case represented Gammon, not Racinelli. Thus, after Gammon went out of business, those attorneys could not be said to be representing Racinelli. In addition, while the order relieving Gammon's attorneys was not signed until March 14th, the order was retroactive to February 22nd. Consequently, even Gammon was not represented at the time the default judgment was entered on March 1st.
In light of the foregoing, it is the conclusion of this Court that Racinelli had no actual or constructive notice of the injunction. Consequently, Racinelli cannot be held in contempt for violating the injunction's terms.1
Synergistics and Lemelson contend that Hansen, as the successor to Gammon's assets, is bound by this Court's March 1st injunction. Hansen responds that it is not bound by the injunction because it was not a party to the original suit and it is not in privity with Gammon. Rule 65(d) states, in part, that:
an injunction . . . is binding only upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise.
Fed.R.Civ.P. 65(d). Rule 65(d) has been interpreted as including, within the category of persons bound, those persons in privity with the parties. Golden State Bottling Co. v. NLRB, 414 U.S. 168, 177-80, 94 S.Ct. 414, 38 L.Ed.2d 388 (1973); Regal Knitwear Co. v. NLRB, 324 U.S. 9, 14, 65 S.Ct. 478, 89 L.Ed. 661 (1945).
In the context of patent litigation, a few courts have found privity to exist where, after the beginning of a suit involving the validity of a patent, a non-party acquires the assets of a party. E. g., Brunswick Corp. v. Chrysler Corp., 408 F.2d 335, 338 (7th Cir. 1969); J. R. Clark Co. v. Jones & Laughlin Steel Corp., 288 F.2d 279, 280 (7th Cir. 1956), cert. denied, 368 U.S. 828, 82 S.Ct. 49, 7 L.Ed.2d 32 (1961); Alb, Inc. v. Noma Lites, Inc., 231 F.2d 662, 663 (2d Cir. 1956). The rationale behind these decisions was expressed by the court in J. R. Clark Co. as follows:
"If a third party may thus come into the acquisition of rights involved in pending litigation without being bound by the final judgment, and require a suit de novo in order to bind him, he might, pending that suit, alienate that right to another with the same result, and a final decree bearing fruit could never be reached."
J. R. Clark Co., 288 F.2d at 280, quoting G. & C. Merriam Co. v. Saalfield, 190 F. 927, 932 (6th Cir. 1911). There are two facts present here, however, which distinguish this case from those in which privity has been found. First, Hansen, the successor, acquired the assets through a secured creditor rather than from a party to the suit. Second, the injunction issued in this case was the result of a...
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...that the original injunction was issued "by default," under the circumstances discussed on pp. 3-4, supra. See Gammon, Inc. v. Lemelson, 442 F.Supp. 211, 214 (D.N.J.1977) (successor to original defendant through purchase of assets held not bound primarily because injunction entered by defau......