Owatonna Manufacturing Company v. Melroe Company, 4-68 Civ. 163.

Decision Date03 July 1969
Docket NumberNo. 4-68 Civ. 163.,4-68 Civ. 163.
Citation301 F. Supp. 1296
PartiesOWATONNA MANUFACTURING COMPANY, Inc., Plaintiff, v. MELROE COMPANY (formerly or also known as Melroe Manufacturing Company) and Cyril N. Keller, Defendants.
CourtU.S. District Court — District of Minnesota

COPYRIGHT MATERIAL OMITTED

Merchant & Gould, by John D. Gould and Paul A. Welter, Minneapolis, Minn., for plaintiff.

Dorsey, Marquart, Windhorst, West & Halladay, by Peter Dorsey and Eugene L. Johnson, Minneapolis, Minn., for Melroe Co.

Williamson, Palmatier & Bains, by Herman H. Bains, Minneapolis, Minn., for Cyril Keller.

MEMORANDUM

NEVILLE, District Judge.

This is a declaratory judgment action involving the questions of validity and alleged infringement of three patents owned by defendants and covering a front-end loader manufactured by defendant Melroe Company under the trade-mark Bobcat.1 The plaintiff manufactures and sells a similar loader under the trademark Mustang. On May 14, 1968 plaintiff filed this complaint seeking a declaration either of patent invalidity or of non-infringement or both. In Count I of plaintiff's complaint, plaintiff alleges violations of Sections 1 and 2 of the Sherman Act based upon patent invalidity and fraudulent procurement in the issuance of Patent No. 3,151,503 and Patent No. 3,231,117. Counts II, III and IV seek declaratory relief under 28 U.S.C. §§ 2201 and 2202 that defendants' three patents are invalid or not infringed by any loader manufactured and sold by plaintiff.

Presently before the court are three motions by defendants. The first seeks an order under Rule 12 of the Federal Rules of Civil Procedure dismissing the complaint on the ground that no justiciable controversy exists between plaintiff and defendants.2 The second motion seeks an order dismissing the complaint for failure to join an indispensable party, namely, Louis J. Keller of Gwinner, North Dakota. In the alternative in the third motion, defendants move this court to transfer this action under 28 U.S.C. § 1404(a) to the United States District Court for the District of North Dakota, Southeastern Division.

FIRST MOTION

The Declaratory Judgment Act requires an actual controversy as a prerequisite to the exercise of subject matter jurisdiction by the court.3 In Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941) the Supreme Court said:

"Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment."

One purpose of the Declaratory Judgment Act is to allow a prospective defendant to sue in order to establish its nonliability. Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 504, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959). This purpose has been applied in patent actions. Thus a plaintiff has been allowed to maintain an action for declaratory judgment of noninfringement and invalidity of a patent where there is a reasonable apprehension of an infringement suit or other damages to customers of the alleged infringer should plaintiff continue to market its product. Japan Gas Lighter Ass'n v. Ronson Corp., 257 F. Supp. 219, 237 (D.N.J. 1966); Sticker Industrial Supply Corp. v. Blaw-Knox Co., 367 F.2d 744, 747 (7th Cir. 1966). In Technical Tape Corp. v. Minnesota Mining & Mfg. Co., 200 F.2d 876, 878 (2nd Cir. 1952) the Second Circuit said:

"once the patentee has made some claim, directly or indirectly, so that notice is given that it asserts that there is or will be an infringement, a justiciable controversy exists, entitling the alleged infringer to seek declaratory relief."

This position has been followed consistently by the Second Circuit and other circuits which have considered the problem. See Dr. Beck and Co. G.M.B.H. v. General Electric Co., 317 F.2d 538, 539 (2nd Cir. 1963); Wembley, Inc. v. Superba Cravats, Inc., 315 F.2d 87, 89 (2nd Cir. 1963); Joseph Bancroft & Sons Co. v. Spunize Co., 268 F.2d 522, 523 (2nd Cir. 1959); Simmonds Aerocessories, Ltd. v. Elastic Stop Nut Corp., 257 F.2d 485, 490 (3rd Cir. 1958); Massa v. Jiffy Products Co., 240 F.2d 702, 705 (9th Cir.), cert. denied, 353 U.S. 947, 77 S.Ct. 825, 1 L.Ed.2d 856 (1957); Federal Telephone & Radio Corp. v. Associated Telephone and Telegraph Co., 169 F.2d 1012 (3rd Cir.), cert. denied, 335 U.S. 859, 69 S.Ct. 133, 93 L.Ed. 406 (1948); Grip Nut Co. v. Sharp, 124 F. 2d 814 (7th Cir. 1941); and Treemond Co. v. Schering Corp., 122 F.2d 702 (3rd Cir. 1941). See also United Lacquer Mfg. Corp. v. Maas & Waldstein Co., 111 F.Supp. 139, 141 (D.N.J. 1953).

Turning to the facts in the case at bar, the court is convinced that there existed an actual controversy between the parties at the time the complaint was filed sufficient to support an action for declaratory judgment. The complaint was filed on May 14, 1968. Prior to that time, on April 24, 1968 the president of the defendant company wrote plaintiff a letter which reads in part as follows:

"We have had our patent lawyers review our Bobcat patents in connection with your Mustang Series 1000 Loader and it is their conclusion that your Mustang infringes the Keller et al patent 3,151,503, the Melroe et al patent 3,231,117, and the Keller et al patent Des. 195,254.
I believe that both your company and ours would prefer not getting into litigation on this matter * * *. What we would like to do is for the management of our two companies to get together on an informal basis and discuss this matter to see if some solution can be worked out."4

Apparently a meeting was held on May 14, 1968 between representatives of both companies. A representative of plaintiff who attended the meeting states that plaintiff had hoped a reasonable settlement could be made but when it became evident that the parties could not settle their differences, plaintiff instructed its attorneys to file a declaratory judgment action in Minnesota.5 Plaintiff also was aware that defendant Melroe Company had sued Universal Manufacturing Company and one of its dealers for patent infringement in the State of Virginia; that Universal had filed a declaratory judgment action against Melroe in Minnesota which Minnesota suit had been stayed pending the outcome of the Virginia litigation. Universal manufactured and sold self-propelled loaders in competition with plaintiff and defendant and the Universal suit apparently involved the same three patents which are the subject matter of this lawsuit. The Universal suit was settled before trial by Universal agreeing to become a licensee and to pay a royalty under the three Bobcat patents.6 The vice-president of plaintiff states in affidavit form:

"Prior to the meeting on May 14, 1968, between the representatives of plaintiff and defendant, I and the other officers of plaintiff learned the approximate amount of royalties being paid by Universal to Melroe under the license agreement. I and the other officers of Plaintiff believed that the royalty rate was unreasonable. We were convinced, prior to the meeting of May 14, 1968, that Melroe Company would sue Owatonna Manufacturing Company, Inc. if a license agreement similar to that granted to Universal were not entered into by Plaintiff, and were apprehensive that Melroe Company would sue one of Plaintiff's customers in a remote jurisdiction rather than suing Plaintiff here in Minnesota.
I and the other officers of Owatonna Manufacturing Company, Inc. had decided prior to the meeting of May 14, 1968 that the royalty rate being paid by Universal was not acceptable to Owatonna Manufacturing Company, Inc., and that if the representatives of Melroe Company gave no inclination of being willing to negotiate a lower rate, that Owatonna Manufacturing Company, Inc. would file the declaratory judgment complaint against Melroe Company and Cyril N. Keller.7

In this perspective, the court is convinced that plaintiff had a reasonable apprehension of an infringement suit by the Melroe Company against either plaintiff or one of its customers. Both the letter to plaintiff by the Melroe Company and the prior Universal litigation were strong indications that defendants would act affirmatively to enforce the protection claimed under the Bobcat patents.

The fact that the parties are willing to negotiate a settlement does not negate the right of one of the parties to file a declaratory judgment action. In almost all actions, whether for declaratory judgment or otherwise, there are negotiations for settlement between the parties.8 The court is aware that two recent opinions by the Seventh Circuit and Ninth Circuit have affirmed a dismissal of a patent declaratory judgment action. An examination of these cases however reveals that in both instances there was no imminent threat of suit as existed in the case at bar. In American Needle and Novelty Co. v. Schuessler Knitting Mills, Inc., 258 F.Supp. 98 (N. D. Ill. 1966), aff'd in part, rev'd in part, 379 F.2d 376 (7th Cir. 1967) the attorneys for the patentee wrote a letter to one of plaintiff's customers asking for a sample of a boy's cap sold by plaintiff and similar to a cap patented by defendant Schuessler. Plaintiff's customer was told only that another manufacturing company had taken a license under the Schuessler patent and that plaintiff's cap was similar in appearance to the cap marketed by Schuessler's licensee. Defendant's attorney also wrote plaintiff stating that plaintiff's cap "may conflict" with the Schuessler patent. The Seventh Circuit affirmed a dismissal of the declaratory judgment action holding that "a charge of infringement was not made, formally or informally, and that a justiciable issue as to invalidity and infringement did not exist * * *." at the time the complaint was filed. 379 F.2d at 379. The Schuessler case is distinguishable from the case at bar. In the present case...

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