Precision Shooting Equipment Co. v. Allen

• Decision Date: 07 April 1981
• Docket Number: No. 78-2357,78-2357
• Citation: 646 F.2d 313,210 USPQ 184
• Parties: PRECISION SHOOTING EQUIPMENT COMPANY and Paul E. Shepley, Jr., Plaintiffs-Appellees, and Bear Archery Company, Division of Victor United, Inc., Intervening Plaintiff-Appellee, v. Holless W. ALLEN and Allen Archery, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 313

646 F.2d 313

210 U.S.P.Q. 184

PRECISION SHOOTING EQUIPMENT COMPANY and Paul E. Shepley Jr., Plaintiffs-Appellees and Bear Archery Company, Division of Victor United, Inc. Intervening Plaintiff-Appellee, v. Holless W. ALLEN and Allen Archery, Inc., Defendants-Appellants.

No. 78-2357.

United States Court of Appeals Seventh Circuit.

Argued Sept. 15, 1980.

Decided April 7, 1981.

Theodore H. Lassagne, Los Angeles, Cal., for defendants-appellants.

William E. Pelton, New York City, for plaintiffs-appellees.

Before WOOD and CUDAHY, Circuit Judges, and CAMPBELL, Senior District Judge. ^*

HARLINGTON WOOD, Jr., Circuit Judge.

This is an appeal from an interlocutory order and preliminary injunction entered in a dispute between the licensee of a patent challenging the validity of the patentee's patent in a declaratory judgment action. ¹ The preliminary injunction provides that the patentee may not terminate the license during the pendency of this litigation so long as the licensee pays into the court's escrow account accruing post-challenge royalties. The licensee has not renounced its license and continues to mark its products with the patentee's patent number as permitted under the terms of the temporary injunction. ²

This litigation was instituted by Precision Shooting Equipment Company seeking a declaratory judgment as to the validity of the patent, to which it claimed to be a non-exclusive sublicensee, issued to defendant Holless W. Allen and assigned by him to defendant Allen Archery, Inc. (Allen). Various other licensees of Allen, including Bear Archery Company (Bear), intervened, all challenging the validity of the Allen patent. Bear secured the particular order and temporary injunction against Allen on September 6, 1978, which Allen now appeals. Only Allen, patentee, and Bear, licensee, are involved in this appeal. There is no dispute about the facts, only on two issues of law, the first jurisdictional and the second, the propriety of permitting Bear the protection of the patent while at least temporarily withholding the royalties in escrow from Allen.

Jurisdictional Issue ³

It is Allen's position that a valid license is an absolute defense to a patent infringement action, since Bear, as licensee, can have no reasonable apprehension of liability in an infringement suit. Arvin Industries, Inc. v. Berns Air King Corp., 510 F.2d 1070 (7th Cir. 1975). That proposition is not disputed, but Allen uses that base to argue that there is therefore no "actual controversy," a constitutional requirement, even though diversity may exist as it does in this case. ⁴ To support its position, Allen relies in part upon joint consideration of Milprint, Inc. v. Curwood, Inc., 562 F.2d 418 (7th Cir. 1977), and Winsor v. Daumit, 185 F.2d 41 (7th Cir. 1950). Allen also directs our attention to Thiokol Chemical Corp. v. Burlington Industries, Inc., 313 F.Supp. 253 (D.Del.1970), dismissing an action by a licensee challenging the validity of a patent, and asks that it be compared with Thiokol Chemical Corp. v. Burlington Industries, Inc., 319 F.Supp. 218 (D.Del.1970), in which the court refused to dismiss a similar suit after termination of the licensee's license. Both decisions were affirmed in Thiokol Chemical Corp. v. Burlington Industries, Inc., 448 F.2d 1328 (3d Cir. 1971), cert. denied, 404 U.S. 1019, 92 S.Ct. 684, 30 L.Ed.2d 668 (1972).

Bear rejects the argument that merely because Bear's license has not been terminated there exists no real controversy between Bear, licensee, and Allen, patentee. In support of its position Bear cites Warner-Jenkinson Co. v. Allied Chemical Corp., 567 F.2d 184 (2d Cir. 1972), American Sterilizer Co. v. Sybron Corp., 526 F.2d 542 (3d Cir. 1975), seeks in part to distinguish Milprint, and generally urges acceptance of jurisdiction when diversity exists on the basis of the strong public policy statement in Lear, Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969).

The "actual controversy" issue in this context casts some shadows not easily illuminated. Subject matter jurisdiction is alleged to be based upon diversity of citizenship of the parties with an amount in controversy in excess of $10,000. 28 U.S.C. § 1332. That is not disputed, but Bear also argues that diversity requires acceptance of "actual controversy" jurisdiction in light of Lear, Inc. v. Adkins, since Bear claims to be faced with a reasonable apprehension of an infringement action once it terminates royalty payments. Bear also cites Milprint, 562 F.2d at 422 n. 5, in which we commented that apparent diversity jurisdiction, not mentioned in the prior opinions of this court in two other declaratory actions by licensees, ⁵ "explains this court's unquestioning acceptance of jurisdiction." In Milprint we were faced with a different aspect of patent litigation. Milprint, the licensee, had ceased making royalty payments to Curwood under its license. Curwood filed suit for royalties in the state court followed by Milprint's action in the district court seeking a declaration that the patent was invalid, that no further royalties were due, and further seeking recoupment of previously paid royalties. We affirmed the district court's dismissal of the action on the basis that Milprint in essence sought in federal court only to assert a defense to a pending state action. It is, we held, the character of the pending state court action, a contract suit for royalties, and not the alleged invalidity defense which determines whether there is federal question jurisdiction. We therefore declined to determine patent validity which was intended to constitute a defense in a contract suit in state court. 562 F.2d at 422. No issue of "actual controversy" was raised in that case. Because it is distinguishable, our view of the present case is not controlled by Milprint.

Allen, as we have mentioned, argues that our decision in Winsor v. Daumit, supra, must be read with Milprint to determine if diversity alone is enough to confer jurisdiction. We will therefore examine Winsor, a diversity case. The plaintiff, Kathleen Winsor, author of Forever Amber, entered into a contract permitting Daumit to adopt the words "Forever Amber" as a trademark for his cosmetic products and agreed that the mark would be Daumit's sole property. She further agreed to help promote the sale of the products for a percentage of the gross sales. She sued for that unpaid percentage. Daumit counterclaimed seeking a declaratory judgment that Winsor's copyright of her book title gave her no right to use the title as a trademark for cosmetics and that the mark belonged to Daumit. We affirmed the dismissal of the counterclaim upon the basis that there was no "actual controversy" between the parties other than the plaintiff's charge of breach of contract. Winsor did not deny that Daumit had the right to use "Forever Amber." Her suit was for the contractual compensation due her for cooperation in promoting the cosmetic sales. The original contract had provided that "Forever Amber" as a mark applied to cosmetics was the sole property of Daumit. It is obvious that Winsor is easily distinguishable from the present case, but it does stand for the proposition that there must be an "actual controversy," and that diversity alone does not satisfy all jurisdictional requirements. Neither Milprint nor Winsor, considered separately or together, dictate any particular result in the present case.

Diversity between the parties is not an ingredient of "actual controversy." It must be remembered that the issue to be determined in the present case is whether an "actual controversy" exists while the license is still in use, diversity or no diversity. In general a "controversy" is more than just a disagreement. It must be justiciable. A court will not render advisory opinions or expound on academic or moot questions merely to satisfy the curiosity of the parties. "The controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests" susceptible to specific relief. Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 240-41, 57 S.Ct. 461, 463-64, 81 L.Ed. 617 (1937); Winsor v. Daumit, 185 F.2d at 43. The controversy, in addition, must be in regard to a federal question, in this case the validity of Allen's patent, or otherwise meet diversity requirements. These latter aspects of the matter are not in dispute. Even so, the application of the general "controversy" rule to a particular patent matter is not easy and may involve a determination of whether in a gray area the gray is dark enough. The determination of controversy between licensee and patentee does not qualify as a scientific exercise.

In the present case, the licensee is still operating under the license and paying the royalties, not to the licensor, but into court pending the resolution of the validity issue. The patentee is not receiving its royalties, but they are accumulating in a safe place for Allen if it is found to be entitled to them. The trial court has prohibited the termination of the license. Before placing this gray area into a legal spectroscope, some additional surrounding circumstances must be noted. In addition to the other licensees challenging validity in this action, Allen, at the time Bear intervened, was already engaged in infringement actions against a former licensee and another manufacturer in other jurisdictions.

These additional facts are significant here because Allen also relies on the Thiokol cases to support its view that a valid license precludes any reasonable apprehension of an infringement suit and thus there can be no actual controversy. In the first Thiokol suit, the licensee sued the patentee seeking a declaratory judgment that the patent was invalid. On the theory that the validity of the patent could arise only as a defense in a suit by the patentee for breach of contract to pay royalties, the district court was affirmed in its...