Moog Controls, Inc. v. Moog, Inc.

• Decision Date: 07 May 1996
• Docket Number: No. 96-CV-74C.,96-CV-74C.
• Citation: 923 F. Supp. 427
• Parties: MOOG CONTROLS, INC., Plaintiff, v. MOOG, INC., Defendant.
• Court: U.S. District Court — Western District of New York

923 F. Supp. 427

MOOG CONTROLS, INC., Plaintiff, v. MOOG, INC., Defendant.

No. 96-CV-74C.

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

May 7, 1996.

Hodgson, Russ, Andrews, Woods & Goodyear (Robert J. Lane, of counsel), Buffalo, New York, for Plaintiff.

Phillips, Lytle, Hitchcock, Blaine & Huber (Joseph V. Sedita, of counsel), Buffalo, New York, for Defendant.

DECISION and ORDER

CURTIN, District Judge.

Plaintiff Moog Controls Inc. ("MCI") is a Delaware corporation with its principal office in East Aurora, New York. Defendant Moog, Inc. ("Moog") is a New York corporation with its principal office also in East Aurora. Plaintiff brings this action pursuant to the Lanham Act, 15 U.S.C. § 1121, and pursuant to this court's supplemental jurisdiction, conferred by 28 U.S.C. § 1367.

Prior to 1987, MCI was owned by Moog and was operated as a division under the name "Domestic Industrial and Automotive Services" Division of Moog, Inc. The division was in the business of designing manufacturing and servicing electrohydraulic servovalves and similar products. In January of 1988, Moog, Inc., formed Moog Controls, Inc. ("MCI"), as a separate Delaware corporation. In doing so Moog, Inc., authorized and consented to MCI's future use of the name Moog. Between January 18, 1988, and February 27, 1988, MCI was a wholly owned subsidiary of Moog. On February 27, 1988, Moog entered into a transaction with William C. Moog, who was at that time the largest shareholder of Moog, Inc. There was a stock exchange agreement, pursuant to which Mr. Moog transferred to Moog, Inc., all of his shares in Moog, Inc., in return for all of Moog's shares in MCI. Since that time, MCI has been independent of Moog, Inc., and no portion of its shares have been owned, either directly or indirectly, by Moog, Inc. At the same time, there was an "asset transfer agreement" with MCI, transferring almost all of the assets of the former industrial and automotive division to MCI. There also was a trade name license agreement, which states in relevant part:

1. Grant. Licensor Moog hereby grants to Licensee MCI the right to use the designation "Moog" as part of Licensee's corporate title "Moog Controls Inc." and as part of Licensee's trade name "Moog Controls." This grant of rights does not extend to use of "Moog" as a trademark or service mark. This grant of rights permits Licensee's use of "Moog" in the kind of composite formats identified above and does not permit the use of "Moog" alone as a corporate identifier or trade designation or in any other capacity.

At oral argument, the parties explained that when the License Agreement was executed, the two companies were not competitors, and enjoyed a largely complementary relationship. Subsequently, however, William Moog sold MCI. The company that purchased MCI entered into direct competition with Moog both in the United States and Europe. Consequently, there are now two companies offering competing products, both using the name "Moog."

The first issue to be decided is whether this court has subject matter jurisdiction of the controversy. The parties have extensively briefed the question, and I have considered oral argument. My prior order referring this matter to United States Magistrate Judge Leslie G. Foschio (Item 2) is vacated.

This lawsuit was triggered by the activities of certain European subsidiaries of Moog and MCI. Moog's Italian subsidiary, Moog Italiani S.r.1. ("MIS") sued MCI's European distributors alleging name and trademark infringement, among other causes of action. MIS is an Italian corporation, organized under the laws of Italy. It is a subsidiary of Moog GmbH, a German corporation. Moog GmbH is a subsidiary of Moog. Mumax S.r.1. ("Mumax") is an Italian corporation organized under Italian law. Mumax is an independently-owned distributor of MCI products in Italy. Mumax was formed in 1995 when a sales executive of MIS left the company to start Mumax.

On January 11, 1996, MIS filed a lawsuit in Italy against Mumax alleging unfair competition and intellectual property right infringement. Neither Moog nor MCI are named parties in the Italian suit. The Italian suit seeks to forbid Mumax from the further use if the name "Moog" to identify servovalves and other products, and to prohibit the distribution, sales, and publicity of certain products which have shapes similar to MIS products. Since the Italian suit was filed, Moog's other European subsidiaries have either filed or threatened similar actions in other countries.

In a letter dated February 28, 1996, Robert Brady, president of Moog, informed Edward Krasnicki, President, Controls Group, Moog Controls, Inc., that it was terminating the Trade License Agreement. Brady stated that the termination was justified because the License Agreement specified no term, and consequently could be terminated by either party at any time, pursuant to New York State law. Item 9 Ex. H.

In a letter dated March 1, 1996, Krasnicki responded that the rule invoked by Brady does not apply to contracts that specify events under which the contract may be terminated. In that case, according to the letter, the contract is only terminable under the specified events. Krasnicki stated that the License Agreement does specify three events under which the contract may be terminated, and that none of these events had occurred. Item 9, Ex. I.

Plaintiff's complaint in this court alleges that MIS's filing of the Italian suit against Mumax interferes with MCI's rights under the Trade Name License agreement. The complaint states five causes of action. In its papers and at oral argument, MCI conceded that the first three causes of action are contract claims, but alleges that the fourth and fifth causes "arise under" federal statutes so as to confer federal jurisdiction. The fourth and fifth causes of action state, in relevant part:

In its fourth cause of action, plaintiff MCI seeks a declaratory judgment and the cancellation of the trademark and tradename of Moog. Moog, at the present time, is the registered owner of the trademark and tradename of "Moog." At the present time, Moog takes the position, through MIS, that MCI does not have the right to use the name "Moog Controls" on its products. MCI denies this, uses the name Moog Controls on its products, and manufactures and sells under this name. Moog, Inc., has been aware of this since early 1988. MCI alleges in this cause that Moog has failed to police the use of its tradename "Moog" and has permitted infringement of it, thereby abandoning this mark.

The fifth count alleges that pursuant to 28 U.S.C. § 2201, and 15 U.S.C. § 1119, MCI is entitled to declaratory judgment, stating that Moog has acquiesced in MCI's use of the name Moog Controls, and that the trademark registration is no longer valid and enforceable.

In its fifth cause of action, plaintiff seeks a declaratory judgment that it has not infringed on the mark, and it is entitled to judgment declaring that MCI has the right to use the name Moog on products manufactured and sold on a worldwide basis.

This court holds that it has no subject matter jurisdiction over plaintiff's claim for the reasons now expressed. For clarity, the fifth cause will be discussed first, and then the fourth cause of action.

A. Plaintiff's fifth cause of action

The Declaratory Judgment Act, 28 U.S.C. § 2201, provides:

In a case of actual controversy within a jurisdiction, ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

Federal jurisdiction does not lie simply because relief is requested under the Declaratory Judgment Act. Colonial Penn Group v. Colonial Deposit Co., 834 F.2d 229, 233 (1st Cir.1987). The Act merely expands the relief available through litigation, it does not affect parties' substantive rights. Id. Congress enlarged the range of remedies available in the federal courts but did not extend their jurisdiction. Skelly Oil v. Phillips Petroleum Co., 339 U.S. 667, 70 S.Ct. 876, 94 L.Ed. 1194 (1950).

A corollary to this principle is that "`if, but for the availability of the declaratory judgment procedure, the federal claim would arise only as a defense to a state-created cause of action, jurisdiction is lacking.'" Franchise Tax Board of California v. Construction Laborers Vacation Trust for Southern California, 463 U.S. 1, 15-17, 103 S.Ct. 2841, 2849-2850, 77 L.Ed.2d 420 (1983) (quoting 10A Charles Allen Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2767, at 744-45 (2d ed. 1983)).

Therefore "in the typical federal trademark or patent declaratory judgment action, a potential infringer seeks a declaration that the defendant's federal rights will not be infringed by the plaintiff's actions, or that the defendant's patent or mark is invalid." Colonial Penn, 834 F.2d at 235.

Where, however, a trademark licensee brings an action against the licensor to enforce its rights under a trademark licensing agreement, the dispute is essentially contractual. Silverstar Enters., Inc. v. Aday, 537 F.Supp. 236, 241 (S.D.N.Y.1982). The Silverstar court reasoned that the mere recital of a trademark issue in the contract did not confer federal jurisdiction over what was essentially a contract dispute. Id.

Similarly, the court in Bear Creek Prods., Inc. v. Saleh, 643 F.Supp. 489, 493-494 (S.D.N.Y.1986), cites Silverstar for the proposition that the Lanham Act is not intended to interfere with the contractual agreement between a mark's owner and his licensee. In licensor-licensee cases where a contract governs the rights to a mark, it is the contract and not the Lanham Act which determines the rights of the parties. Id.

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