Nagel v. Crain Cutter Co.

• Decision Date: 30 March 1971
• Docket Number: No. 107,107
• Citation: 184 N.W.2d 876,50 Wis.2d 638
• Parties: , 170 U.S.P.Q. 44 Donovan W. NAGEL, Appellant, v. CRAIN CUTTER CO., Inc., a foreign corp., Respondent.
• Court: Wisconsin Supreme Court

Page 876

184 N.W.2d 876

50 Wis.2d 638, 170 U.S.P.Q. 44

Donovan W. NAGEL, Appellant, v. CRAIN CUTTER CO., Inc., a foreign corp., Respondent.

No. 107.

Supreme Court of Wisconsin.

March 30, 1971.

Rehearing Denied June 2, 1971.

This is an action attempting Wisconsin court jurisdiction under Wisconsin's 'long-arm' statute, sec. 262.05. Plaintiff is an individual and a resident of Madison, Wisconsin, and was such at all times material to this controversy. He is the inventor and patentee of electric carpet cuttig tools described and claimed in United States Letters Patent for Invention No. 3,224.092.

Defendant is a California corporation, with all of its offices and places of business located in Santa Clara, California; it is not licensed to do business in Wisconsin. Defendant maintains no offices, warehouse, stock of goods or inventory, bank account, or telephone listing in Wisconsin. Nor do any of defendant's agents, employees or representatives reside or maintain a place of business in Wisconsin. In fact, according to defendant's affidavit in support of its motion to dismiss, only once has an agent of defendant ever visited Wisconsin on behalf of defendant, and that visit was made by defendant's general manager in 1960.

Defendant has only one customer in Wisconsin, with whom business is carried on by mail. Average gross sales by defendant in Wisconsin amounted to less than $2,000 annually prior to 1969; during 1969 the gross sales in this state amounted to $4,486.76.

By a written agreement effective October 8, 1963, plaintiff entered into a licensing agreement with defendant, whereby defendant was exclusively licensed to manufacture and sell certain carpet cutting tools for which plaintiff had at that time made a patent application; a patent was issued thereon in December, 1965.

In exchange for this exclusive license, defendant agreed to pay plaintiff a unit royalty, with a minimum guaranteed annual royalty of $1,200.

The parties also executed an entirely different contract whereby plaintiff would manufacture and supply defendant with blade components for the cutting tool. Defendant paid plaintiff for these blade components as invoiced. There is nothing in the complaint relating to this contract.

On Sepember 17, 1969, defendant, through its attorneys, notified plaintiff in writing that it would not pay further royalties under the agreement, and has not done so. Plaintiff, through his attorneys, replied in writing that if defendant did not pay royalties as due, he would consider the contract breached. No further payments have been made.

Plaintiff commenced this action by personal service (October 31, 1969) of summons and complaint on an officer of defendant in Santa Clara, California. On November 19, 1969, defendant filed a motion to dismiss for lack of personal jurisdiction, supported by a special appearance affidavit of defendant's general manager, Millard Crain, Jr. A hearing on the motion was held on December 11, 1969, and an order and judgment entered granting defendant's motion. Plaintiff appeals.

Keith Schoff, Madison, for appellant.

Rosenberg & Wiseman, San Jose, Cal., LaFollette, Sinykin, Anderson & Abrahamson, Madison, for respondent; Jack M. Wiseman, San Jose, Cal., of counsel.

WILKIE, Justice.

The only issue presented by this appeal is whether the trial court erred in determining that it had no personal jurisdiction over defendant. To decide this question, the various provisions of Wisconsin's long-arm statute (sec. 262.05) must be examined and applied to the particular facts in light of due process requirements. ¹

The trial court made the following findings:

'* * * By correspondence, the parties negotiated a patent licensing agreement, which the defendant executed in California. One conference relating to the agreement before its execution was held in the state of Illinois. There have been no contacts between the parties within the state of Wisconsin relating to this agreement except the receipt by the plaintiff of royalty checks mailed to him by the defendant from the state of California. * * *

'The plaintiff has alleged jurisdiction under Wisconsin statutes 262.05(4) and 262.05(5)(c).'

Sec. 262.05(4), Stats., provides:

'(4) Local injury; foreign act. In any action claiming injury to person or property within this state arising out of an act or omission outside this state by the defendant, * * *.'

The trial court was entirely correct in determining that this section dealt with tortious injuries, and was inapplicable to a case involving an alleged breach of contract, as here involved. Plaintiff's complaint sounds in contract, not tort; the damages he seeks are based on the amount due under the licensing agreement. To hold that subs. (3) and (4) apply to contract actions as well as tort actions would make sub. (5) unnecessary and redundant.

Sec. 262.05(5), Stats., provides:

'(5) Local services, goods or contracts. In any action which:

'(a) Arises out of a pormise, made anywhere to the plaintiff or to some third party for the plaintiff's benefit, by the defendant to perform services within this state or to pay for services to be performed in this state by the plaintiff; or

'(b) Arises out of services actually performed for the plaintiff by the defendant within this state, or services actually performed for the defendant by the plaintiff within this state if such performance within this state was authorized or ratified by the defendant; or '(c) Arises out of a promise, made anywhere to the plaintiff or to some third party for the plaintiff's benefit, by the defendant to deliver or receive within this state or to ship from this state goods, documents of title, or other things of value; or

'(d) Relates to goods, documents of title, or other things of value shipped from this state by the plaintiff to the defendant on his order or direction; or

'(e) Relates to goods, documents of title, or other things of value actually received by the plaintiff in this state from the defendant without regard to where delivery to carrier occurred.'

Examining the specific provisions of sec. 262.05(5), Stats., we must keep in mind that plaintiff is not suing on his contract to supply defendant with the blade component for the cutting tool, but is seeking to enforce the licensing agreement. No provision of sub. (5) is applicable to give Wisconsin courts jurisdiction.

The alleged breach of the licensing agreement is defendant's refusal to pay royalties to plaintiff. Hence the action does not arise 'out of a promise * * * by the defendant to perform services within this state or to pay for services to be performed in this state by the plaintiff;' ² nor does it arise 'out of services actually performed * * * within this state * * *' by either party for the benefit of the other; ³ nor does it arise 'out of a promise * * * by the defendant to deliver or receive within this state or to ship from this state goods, documents of title, or other things of value.' ⁴ It also does not 'relate(s) to goods, documents of title, or other things of value shipped from this state * * *,' ⁵ or '* * * received by the plaintiff in this state * * *.' ⁶

Appellant contends that his receipt of royalty payments, i.e., money payment, constitutes 'other things of value' within the purview of sec. 262.05(5)(c)--(e), Stats. This can hardly have been the legislative intent.

If so, a serious due process problem would arise, since a plaintiff could perform services for a nonresident defendant in another state, with payment actually made to plaintiff in Wisconsin, and the defendant held subject to the jurisdiction of a Wisconsin court even though he has had no contact with this state. The mere sending of money into this state, without more, cannot constitute a substantial minimum contact within the purview of due process requirements. ⁷

Appellant also contends that pars. (a) and (b) of sec. 262.05(5), Stats., apply because under the licensing agreement plaintiff was to secure a patent on the cutting tool and actually did so. An examination of the licensing agreement sued upon discloses no such obligation. Defendant is obligated to pay royalties on all units sold, whether a patent is obtained or not. The agreement provides that the 'Licensee * * * may at its own expense, and in its own name, file and obtain patent applications and patents on power tools of licensor's existing invention in countries other than United States and Canada * * *.' Our search of the agreement discloses no obligation on the plaintiff-licensor to obtain a patent on the tool.

We are satisfied that the specific provisions of sec. 262.05(5), Stats., have no application in the present case.

There remains the final question whether personal jurisdiction over defendant may be exercised under the general provisions of sec. 262.05(1), Stats. This section provides that a court of this state may exercise jurisdiction over a nonresident defendant:

'(1) * * * In any action whether arising within or without this state, against a defendant who when the action is commenced:

'* * *

'(d) Is engaged in substantial and not isolated activities within this state, whether such activities are wholly interstate, intrastate, or otherwise.'

This secion corresponds in a general way to the 'doing business' statute common in other states, ⁸ and presents a jurisdictional ground which is distinct from the specific sections of the long-arm statute discussed above. Subs. (1) and (2) of sec. 262.05 recodify the jurisdictional grounds of prior law, while subs. (3) through (11) 'incorporate grounds which expand the exercise of personal jurisdiction * * *.' ⁹

Consequently the court must look to the nature of defendant's activities in Wisconsin to determine whether they were such as to constitute 'substantial and not isolated activities * * *' within the meaning of sec. 262.05(1)(d), Stats. This determination must, of course, be made in light of the requirements of due process. ¹⁰

The...