Graham Engineering Corp. v. Kemp Products Ltd.

• Decision Date: 20 June 1976
• Docket Number: Civ. A. No. C 75-876.
• Citation: 418 F. Supp. 915
• Parties: GRAHAM ENGINEERING CORPORATION, Plaintiff, v. KEMP PRODUCTS LTD., Kemp Products, Inc., and Carlisle Corporation, Defendants.
• Court: U.S. District Court — Northern District of Ohio

418 F. Supp. 915

GRAHAM ENGINEERING CORPORATION, Plaintiff, v. KEMP PRODUCTS LTD., Kemp Products, Inc., and Carlisle Corporation, Defendants.

Civ. A. No. C 75-876.

United States District Court, N. D. Ohio, E. D.

June 20, 1976.

COPYRIGHT MATERIAL OMITTED

James H. Woodring, Squire, Sanders & Dempsey, Cleveland, Ohio, Albert E. Fey, John A. Howson, of Fish & Neave, New York City, of counsel, for plaintiff.

Albert R. Teare, Teare, Freeman, Sammon & Taylor, Cleveland, Ohio, for defendants.

MEMORANDUM AND ORDER

WILLIAM K. THOMAS, District Judge.

In this patent action plaintiff Graham Engineering Corporation (Graham), a Pennsylvania corporation, originally sought damages and an injunction against all defendants based upon defendants' alleged infringement of United States Patent No. 3,317,642, "Volume Stabilization of Molded Plastic Containers by Heating after Molding." In 1973 defendant Kemp Products Limited (hereafter KPL), a Canadian corporation, entered into a licensing agreement with the Carlisle Corporation, an Ohio corporation, for the production of plastic milk bottles using a volume stabilization process patented by KPL, U.S. Patent No. 3,716,606, "Method of Stabilizing Thermoplastic Containers." Graham contends that the process licensed under the KPL patent infringes the Graham patent.

This suit was filed on October 6, 1975. On February 12, 1976, plaintiff and defendant Carlisle Corporation submitted a final decree, approved by the court, admitting the validity of the Graham patent '642, perpetually restraining Carlisle "from further infringement of said patent . . . until after the expiration of said patent or until further order of this Court, provided, however, that use of such methods under patent '642, pursuant to a license agreement between the plaintiff and Carlisle Corporation, shall not constitute a violation of said injunction," and providing that there would be no accounting between Graham and Carlisle, each party bearing its own costs.

On February 5, 1976, defendant Kemp Products, Inc. (KPI), an Ohio corporation, replied, denying infringement and asserting counterclaims for a declaration that KPI has not infringed or induced infringement of plaintiff's patent, that the patent is unenforceable against KPI, and that on various grounds the patent is invalid. Pursuant to 35 U.S.C. § 285 KPI also claims that plaintiff has acted inequitably and seeks its costs and attorney fees, trebled.

Defendant KPL has moved to quash service of process on the ground that it is not subject to the in personam jurisdiction of this court. Service was effected by certified mail upon KPL in Canada and by personal service upon an entity described as "Kemp Products, Inc. (U.S. counterpart of Kemp Products Ltd.)" at the address of Kemp Products, Inc. in Cleveland. KPL asserts that it has no "U.S. counterpart."

Following initial briefing on the jurisdiction issue this court, by letter, asked the parties to furnish the court with additional documentation and information to be considered as part of the factual record. The principal documents furnished pursuant to the request are now summarized. KPL has supplied an affidavit from Paul G. Kemp, chairman of the board of KPL and an officer of KPI, concerning the relationship of KPL and KPI. The affidavit states that KPL has supplied no technical assistance to Carlisle pursuant to the licensing agreement. Additionally, KPL has supplied a copy of the licensing agreement and copies of various letters relating to the licensing agreement and a microwave oven, which was supplied by a Canadian corporation apparently unrelated to KPL.¹

After searching its own files Graham has supplied a copy of a letter from KPL to Graham which, Graham says, reveals a cross-licensing arrangement between KPL and Sun Industries, Inc., an Ohio corporation; a copy of an assignment to KPI by KPL of six patent applications; and copies of KPI's 1971 and 1973 financial statements, which, according to Graham, reveal a number of relationships between KPI and KPL. Although KPL's counsel has informed the court that company records are being searched for mail and telephone contacts by KPL with Ohio, no information concerning such contacts has yet been supplied to the court. Nevertheless, for reasons which will receive explication later in this opinion, it is concluded and determined that enough information is now available to the court to justify the conclusion that in personam jurisdiction over defendant KPL does lie in this court. Thus the jurisdiction question will be discussed in light of the above-described undisputed submissions and the briefs of the parties.

I.

Initially the nature of the cause of action asserted by Graham against KPL requires some examination. Since Carlisle and Graham have settled their suit, no ongoing infringement is at issue. Graham, rather, seeks damages from KPL on the grounds that KPL induced Carlisle to violate the Graham patent, citing 35 U.S.C. § 271(b): "Whoever actively induces infringement of a patent shall be liable as an infringer."

In its reply brief in support of its motion to quash plaintiff's service of summons, KPL asserted that plaintiff actually based its cause of action on section 271(c):

Whoever sells a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patent process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer.

Because, inter alia, Paul Kemp's affidavit submitted in response to the court's request and other documents and letters in the record indicate that KPL did not supply Carlisle with a microwave oven, KPL asserts that it cannot be liable to Graham under the terms of section 271(c). If Graham ever attempted to assert such a claim, its subsequent briefs make it clear that section 271(c) has been abandoned as the basis for a cause of action and that the suit is based primarily on section 271(b).

A cause of action based upon section 271(b) has been said to sound in tort, Honeywell, Inc. v. Metz Apparatewerke, 509 F.2d 1137 (7 Cir. 1975); but, as will be discussed hereafter, the court concludes that the nature of the action, and particularly where the alleged tort took place, need not be considered in deciding the jurisdictional issue. The relevant question is whether KPL can be said to have transacted business in Ohio, pursuant to Ohio Rev. Code § 2307.382(A)(1).

II.

The affidavit of Paul Kemp asserts, and plaintiff does not deny, that he and one James Steele each own one-third of the shares of "a company called `Associated,'" which company in turn owns 50 percent of the common shares of KPI. Kemp states that he and Steele each own approximately one-third of the issued outstanding common shares of KPL, that Kemp owns approximately 12 percent of the preferred shares of KPL, and Steele owns approximately 24 percent of KPL's preferred shares. These facts indicate, of course, that KPI is not a subsidiary of KPL. Further, although the 1971 and 1973 KPI balance sheets submitted by plaintiff bear evidence of a number of intercorporate dealings between KPL and KPI, there is nothing in the nature of those dealings as they currently appear in the evidence to support a judgment that KPI is somehow the United States "counterpart" of KPL. Hence, the court concludes that KPL is justified in its assertion that the organization denominated "Kemp Products, Inc. (U.S. counterpart of Kemp Products Ltd.)" does not in fact exist.² For this court to assert jurisdiction over KPL, a basis will have to appear in the activities of KPL itself.

III.

A.

Plaintiff initially contends that whether this court has jurisdiction of the action is strictly a matter of federal law. The cases cited for this proposition support it only by indirection;³ actually Rule 4(e), Federal Rules of Civil Procedure, provides to the contrary:

. . . Whenever a statute or rule of court of the state in which the district court is held provides (1) for service of a summons or of a notice, or of an order in lieu of summons upon a party not an inhabitant of or found within the state, . . . service may . . . be made under the circumstances and in the manner prescribed in the state statute or rule.

Since patent actions are based directly upon federal law, doubtless Congress could provide statutorily for federal rules governing jurisdiction, as it has done for venue (28 U.S.C. § 1400). But Congress has not done so on a general basis, and without such congressional direction the courts will look to the state in which the district is located to determine whether jurisdiction may be asserted over an out-of-state defendant. Hence it is appropriate to apply Ohio law governing service of summons on persons "not found in the state." See Japan Gas Lighter Association v. Ronson Corp., 257 F.Supp. 219, 231 (D.N.J.1966).

B.

The Ohio statutory provision to be construed in this case is the state's long-arm statute, Ohio Rev.Code § 2307.382. In pertinent part that section reads:

(A) A court may exercise personal jurisdiction over a person who acts directly or by an agent, as to a cause of action arising from the person's:

(1) Transacting any business in this state;

* * * * * *

(B) When jurisdiction over a person is based solely upon this section, only a cause of action arising from acts enumerated in this section may be asserted against him.⁴

Research demonstrates that the "transacting business" section of the long-arm statute has received more attention and interpretation than any other subsection of the provision.⁵ In particular, the subsection was the subject of detailed attention in In-Flight Devices Corp. v. Van Dusen Air, Inc., 466 F.2d 220 (6 Cir. 1972). The approach utilized in In-Flight...