SUPERIOR STEEL DOOR, ETC. v. BANNER METALS, 78 C 1615.

• Court: United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
• Citation: 479 F. Supp. 704
• Docket Number: No. 78 C 1615.,78 C 1615.
• Parties: SUPERIOR STEEL DOOR & TRIM CO., INC., Plaintiff, v. BANNER METALS DIVISION OF INTERCOLE AUTOMATION, INC., Defendant.
• Decision Date: 28 September 1979

479 F. Supp. 704

SUPERIOR STEEL DOOR & TRIM CO., INC., Plaintiff, v. BANNER METALS DIVISION OF INTERCOLE AUTOMATION, INC., Defendant.

No. 78 C 1615.

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

September 28, 1979.

Bauer & Amer, P. C., Mineola, N. Y., for plaintiff.

Kirschstein, Kirschstein, Ottinger & Cobrin, P. C., New York City, for defendant.

MEMORANDUM AND ORDER

PLATT, District Judge.

This is an action for declaratory judgment arising from a controversy between plaintiff, Superior Steel Door & Trim Company ("Superior"), and defendant, Banner Metals Division of Intercole Automation, Inc. ("Banner"), as to whether Banner is entitled to receive royalties resulting from the procurement by the Post Office of a "post-con" container from Superior. Defendant Banner has moved to dismiss the complaint pursuant to Rule 12, Federal Rules of Civil Procedure ("FRCP") or, in the alternative, for summary judgment pursuant to Rule 56, FRCP.

FACTS

Superior, a New York corporation, and Banner, a California corporation, compete in supplying products to the United States Postal Service. One such product is the "post-con" container.

On January 25, 1977, Banner entered into a License Agreement with the Postal Service. Banner granted the Postal Service non-exclusive licenses in several Banner patents and patent applications, including the then pending patent application on the "post-con" container,¹ "to manufacture or have manufactured and to use or to have used and to sell Licensed Materials in the U.S., its territories and possessions" (License Agreement ¶ 1). The Postal Service agreed that "on authorizing a vendor to manufacture Licensed Materials," it would notify Banner of the name of the vendor and the number of licensed materials the vendor was authorized to manufacture. The Postal Service would also inform each vendor that its right to manufacture the licensed materials arose solely from the License Agreement. (Id. ¶ 2). Furthermore, the Postal Service agreed to pay Banner a royalty of 5% of the purchase price of each licensed item manufactured for the Postal Service if such materials were manufactured by a company other than Banner (Id. ¶¶ 4, 5). In short, the agreement provided that if the Postal Service contracted to have the "post-con", or other licensed materials, manufactured by a company other than Banner, presumably in compliance with the Banner specifications, the Postal Service would give Banner notice as to the outside company and the number of items to be manufactured and would pay a royalty to Banner at a rate of 5% of the purchase price of each item manufactured. If Banner manufactured the items, however, the Postal Service would pay Banner only the purchase price.

On July 20, 1977, the United States Postal Service issued Solicitation No. 104230/77/A/0086, for procurement of a "post-con" container. In accordance with the License Agreement, the Postal Service solicitation included the following statement:

"The Postal Service has a non-exclusive license under U.S. Patent Application Serial No. 588,143, now refiled as Continuation in Part Serial No. 749,732, with Banner Metals Division of Intercole Automation, Inc. Due to the existence of the license agreement a royalty evaluation factor will be applied to bids where appropriate."

Banner asserts herein that the Postal Service Contracting Manual § 1.304.3 "Procurement of Patented Items when Government is a Licensee" incorporated by reference in 39 C.F.R. § 601.100 sanctions the royalty evaluation factor.²

Both Superior and Banner submitted bids. Application of the royalty evaluation factor increased Superior's bid by 5%. Subsequently, the Postal Service accepted Superior's bid. On December 27, 1977, Banner's "post-con" container continuation patent application No. 749,732 was issued as U.S. Patent No. 4,065,141. By orders dated March 31, 1978 and October 26, 1978, the Postal Service paid to Banner the 5% royalty fees for the "post-con" containers manufactured by Superior.

In its first cause of action, Superior claimed that the application of a "royalty evaluation factor" in competitive procurement based only upon a pending patent application (emphasis added) is illegal and contrary to procurement policies. Superior argues that such evaluation factors and corresponding agreement provisions requiring royalty payments properly apply only to materials protected by actual U.S. Patents, not mere patent applications. Thus, Superior contends that, as a result of the enforcement of the licensing agreement between Banner and the Postal Service and the royalty payments to Banner by the Postal Service, Banner was guilty of unfair competition and did cause and continues to cause irreparable injury to Superior (Amended Complaint, ¶ 10). Superior claims that the royalty payment "will be used by Banner to improperly achieve a competitive advantage over Superior in present and future competitive procurement bids for the `post-con' container." (Id. ¶ 16). Superior alleges that it will suffer irreparable harm unless royalty payments made by the Postal Service to Banner are returned to the Postal Service.

In moving to dismiss or, in the alternative, for summary judgment, Banner argues first, that Superior has failed to allege how or why it has suffered injury. Second, Banner asserts that Superior has failed to show any violation of a legally protected interest, that there is no justiciable controversy, and thus that Superior has no standing to sue.

In response, Superior claims that its first cause of action was designed to redress an overreach of alleged protection of property resulting from defendant's obtaining royalties on production of materials covered by a patent application as opposed to an actual patent. Superior claims that the 5% increase of its bid harmed its ability to compete with Banner. Superior further claims that Banner's receipt of the 5% royalty, even though the 5% was paid by the Postal Service and not by Superior, injured and will continue to injure Superior in that payment of the royalties to Banner bolsters Banner's economic condition and will enable Banner to underbid Superior in the future. Superior concludes that such an injury is sufficiently concrete to confer standing.

By its second cause of action, Superior seeks a declaratory judgment as to whether Superior is infringing U.S. Patent No. 4,065,141 for "Bulk Mail Container" issued to Banner, and as to whether said patent is valid (Id. ¶ 19). Superior apparently bases the first part of this cause of action upon an answer by defendant to plaintiff's interrogatories. Question 15 of plaintiff's interrogatories asked defendant to

"(s)tate if defendant contends that the `post-con' container being supplied by plaintiff in response to United States Postal Service Solicitation No. 104230-78-8-0121 infringes said U.S. Patent No. 4,065,141."

Defendant answered, "yes—all claims" were allegedly infringed.

In the second part of its second cause of action, Superior claims that Patent No. 4,065,141 is invalid on the grounds that the patentee—Banner—was not the first inventor; the "post-con" container was in public use and on sale in this country for more than one year prior to the filing of the patent application by Banner. Therefore, Superior asserts that Banner is estopped from maintaining that the claims of said Letters Patent have such scope as to cover or embrace any acts of Superior or apparatus used or sold by Superior.

In its present motion, Banner argues that an action for a declaratory judgment in patent cases must be based upon plaintiff's reasonable apprehension of facing either an infringement suit or the damaging threat of one to himself or his customers. Banner asserts that is only a statement with respect to plaintiff's infringement of Patent No. 4,065,141 and was in direct response to plaintiff's interrogatories. Banner argues that it did not go beyond this answer; it did not threaten Superior with litigation. And, furthermore, Banner claims that irrespective of its actions, 28 U.S.C. § 1498 effectively precludes Banner from bringing a direct action against Superior. Thus, defendant concludes that, as it has neither commenced, nor threatened litigation, there is no justiciable controversy which would support plaintiff's action for a declaratory judgment.

Superior argues in response that the

"claim now being made by Banner that it has not asserted the patent in suit is belied by its compelling of the U.S. Postal Service, an actual customer of both parties now as well as a future potential customer of the alleged patented product, to enter into and live up to the terms of a royalty agreement involving the product, is clearly an assertion of patent rights affecting the plaintiff."

(Plaintiff's Memorandum in Opposition to Defendant's Motion to Dismiss.)

Superior had brought a third cause of action alleging that Banner had conducted a "campaign of intimidation, harassment and annoyance against Superior (and its major customer) . . . with the purpose of injuring Superior's business." (Amended Complaint, ¶ 30). Following oral argument on the motion, Superior voluntarily withdrew its third cause of action.

DISCUSSION

I

The first issue before this Court is whether Superior has standing to sue. "For the purposes of ruling on a motion to dismiss for want of standing, . . . the Court . . . must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party." Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 2206, 45 L.Ed.2d 343 (1975).

Standing imports justiciability. The plaintiff must make out a "case or controversy between himself and the defendant within the meaning of Article III." Id. at 499, 95 S.Ct. at 2205. The plaintiff must allege "such a personal stake in the outcome of the controversy" as to justify exercise of the Court's remedial powers on his behalf. Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691, 703, 7...