OMI Intern. Corp. v. MacDermid, Inc.

• Decision Date: 17 March 1986
• Docket Number: Civ. No. C-85-1131-WS.
• Court: U.S. District Court — Middle District of North Carolina
• Parties: OMI INTERNATIONAL CORPORATION, Plaintiff, v. MacDERMID, INCORPORATED, Defendant.

648 F. Supp. 1012

OMI INTERNATIONAL CORPORATION, Plaintiff, v. MacDERMID, INCORPORATED, Defendant.

Civ. No. C-85-1131-WS.

United States District Court, M.D. North Carolina, Winston-Salem Division.

March 17, 1986.

Charles R. Rhodes, Greensboro, N.C., Don K. Harness, Birmingham, Mich., Richard P. Mueller, OMI Intern. Corp., Warren, Mich., for plaintiff.

Larry L. Coats, Raleigh, N.C., for defendant.

MEMORANDUM OPINION

BULLOCK, District Judge.

This suit arises from an alleged inducement of patent infringement, in violation of 35 U.S.C. § 271(b). The Michigan-based Plaintiff, OMI International Corporation (hereinafter "OMI"), alleges that the court's jurisdiction is established under 28 U.S.C. § 1338, and that venue is established under 28 U.S.C. § 1400(b). MacDermid, Incorporated (hereinafter "MacDermid"), a Connecticut-based corporation, has filed a motion to dismiss for improper venue, or alternatively to transfer pursuant to 28 U.S.C. § 1404(a). Presently before the court are Defendant's motion, brief, and supporting documents, Plaintiff's brief and response, and Defendant's reply. After careful consideration of these pleadings and of the courts' application of 28 U.S.C. § 1400(b), the court denies Defendant's motion to dismiss Plaintiff's complaint for improper venue, and grants Defendant's motion to transfer this action to the District of Connecticut.

FACTUAL BACKGROUND¹

Plaintiff has established a patent claiming both the composition and the process, using a chemical bath solution, for electro depositing a nickel-iron alloy on a conductive substrate. Defendant MacDermid has allegedly induced and contributed to infringement of this patent by selling certain compounds and chemicals to its customers and providing them instruction and assistance in duplicating OMI's patented process. One of these customers was Proctor-Silex, a company based in Mt. Airy, North Carolina, with whom MacDermid dealt until March 1985. MacDermid products are also sold in North Carolina by an independent distributor, W.A. Reynolds Co., a Pennsylvania corporation that places its purchase orders from its Philadelphia office and directs payment to Defendant's Connecticut office. It is Defendant's uncontroverted assertion that it has not sold any of the disputed products to a North Carolina customer since March 1985, at which time it lost its Proctor-Silex business to Plaintiff, who filed the complaint in this action six months later, on October 3, 1985.

MacDermid's business contacts with North Carolina include three salesmen who work from their North Carolina residences; a salesman resident of Virginia who solicits some business in North Carolina; and rented space in a public warehouse in this district in which it maintains an inventory of certain repeat or standing order products. This warehouse carries a yellow-pages telephone number listing. Defendant pays property taxes to North Carolina based upon this inventory, and it pays North Carolina income tax for North Carolina-generated income.

The inventory kept in this Guilford County, North Carolina, warehouse is released only upon orders sent to and authorized by MacDermid employees in Waterbury, Connecticut, where all final approval, paper-work, processing, and shipping or authorization for release of the products takes place. Defendant provides neither office space nor transportation to its North Carolina salesmen, and its name is neither displayed at their residences nor listed with their names in the telephone directory.

DISCUSSION

I. Defendant's Motion to Dismiss for Improper Venue.

The sole and exclusive provision controlling venue in patent infringement actions is 28 U.S.C. § 1400(b). Fourco Glass Co. v. Transmirra Corp., 353 U.S. 222, 229, 77 S.Ct. 787, 792, 1 L.Ed.2d 786 (1957). See also In re Cordis Corp., 769 F.2d 733, 734 (Fed.Cir.1985); American Cyanamid Company v. Nopco Chemical Company, 388 F.2d 818, 821 (4th Cir.1968). The only possible exception to this Section 1400(b) preemption of the general venue statutes is 28 U.S.C. § 1391(d) which provides that an "alien may be sued in any district." This has been held to pertain to patent infringement complaints as well, but does not pertain to this case. Brunette Machine Works Limited v. Kockum Industries, Inc., 406 U.S. 706, 92 S.Ct. 1936, 32 L.Ed.2d 428 (1972). Thus, this requirement of § 1400(b) venue is "specific and unambiguous, and it is not one of those vague principles which ... is to be given a `liberal' construction." Schnell v. Peter Eckrich and Sons, Inc., 365 U.S. 260, 264, 81 S.Ct. 557, 560, 5 L.Ed.2d 546 (1961) (quoting Olberding v. Illinois Central R. Co., 346 U.S. 338, 340, 74 S.Ct. 83, 85, 98 L.Ed. 39 1953).

Under 28 U.S.C. § 1400(b) the Defendant must fall within one of two potential categories of forums. The first possible forum is where the Defendant resides, which has been held to be the place of its incorporation by decision law. 15 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure Jurisdiction § 3823 at 217, 219 (1986). The second place of proper venue is the forum where Defendant has both: committed the alleged acts of infringement and has "a regular and established place of business." For the purpose of this motion to dismiss or transfer, the Defendant concedes that at one time in this district it engaged in acts which OMI has construed as infringement upon its patent, either by inducement or contribution. Thus the issue before this court is confined to the question of whether MacDermid's contacts with this district are sufficient to amount to a "regular and established place of business."

The case law development of this issue encompasses a wide variety of opinions as to the type and extent of contacts that signify a regular and established place of business. Indeed, the courts have reached opposite conclusions in substantially similar cases. However, there are discernibly similar emphases on factors to be considered in making this decision.²

Whether or not they articulate it, most courts seem to agree as a general principle that more contacts are required under Section 1400(b) than under the "doing business" test of 28 U.S.C. § 1391(c). See Knapp-Monarch Co. v. Casco Products Corp., 342 F.2d 622, 625 (7th Cir. 1965); Phillips v. Baker, 121 F.2d 752, 755-56 (9th Cir.), cert. denied, 314 U.S. 688, 62 S.Ct. 301, 86 L.Ed. 551 (1941); Clearasite Headwear, Inc. v. Paramount Cap Mfg. Co., 204 F.Supp. 4, 6 (S.D.N.Y. 1962). As to the specific contacts considered by the Section 1400(b) venue opinions, this court agrees with the recent analysis by the New Jersey District Court that:

Two factors play a significant role in determining whether a defendant maintains a regular and established place of business.... First and most importantly, courts look to whether the defendant maintains, controls and pays for a permanent physical location from which sales are made within the district. citations omitted. Secondly, when a defendant owns or leases property in the district and employs sales representatives, courts look to whether these employees work exclusively for the defendant and whether they are authorized to consummate sales as opposed merely to solicit orders within the district. citations omitted.

Warner-Lambert Co. v. C.B. Fleet Co., Inc., 583 F.Supp. 519, 223 U.S.P.Q. 1053, 1056 (D.N.J.1984).

The Fourth Circuit's opinion in American Cyanamid v. Nopco, supra, has often been cited for the ruling that a regional salesman or sales manager is not the equivalent of a regular and established business when he maintains an office in his residence without financial assistance for that purpose from the defendant employer, and without a sign or telephone listing indicating that he is a representative of the defendant. See Warner-Lambert Co. v. C.B. Fleet Co., Inc., 583 F.Supp. at 523, 223 U.S.P.Q. at 1056. A Seventh Circuit opinion cited by American Cyanamid holds that the Section 1400(b) requirements are not met when: the defendant had a sales representative who solicited sales in the area and maintained an office for which the defendant did not pay, but which listed the defendant's name on the building directory; the defendant maintained a bank account in the district and listed its name in the classified telephone directory; and the defendant participated in its semi-annual housewares show. In another case these facts might well have been considered sufficient for Section 1400(b) venue. However, the actual activities of that sales representative were also significant to the court, in that the employee had sold very few items and had terminated his relationship with the defendant shortly before the complaint was filed. Knapp-Monarch Co. v. Casco Products, 342 F.2d 622 (7th Cir.1965).

American Cyanamid also relies upon a First Circuit case in which the defendant maintained a sales office, a listing on the building directory, and listings in both the local telephone directory and the yellow pages, yet the court held that the defendant did not maintain a regular and established place of business. General Radio Co. v. Superior Electric Co., 293 F.2d 949 (1st Cir.1961). The opinion follows an early Supreme Court case which discusses the preceding "1897 Act" in which the determinative factor is that the local salesman's only duty was to solicit orders and forward them, without consummating the sales himself. Id. at 951 (quoting W.S. Tyler Co. v. Ludlow Saylor Wire Co., 236 U.S. 723, 35 S.Ct. 458, 59 L.Ed. 808 1915).

Seventy years later the activities of a defendant's salesmen still seem to be the determinative factor in these venue questions. Nothing else appearing, the court would be inclined to grant Defendant's motion to dismiss for improper venue. However, the Federal Circuit recently denied a petition for a writ of mandamus seeking to require a Minnesota district court to dismiss an action for improper venue. In that case the defendant maintained no bank account and neither owned...