Tycom Corporation v. Redactron Corporation

Decision Date07 August 1974
Docket NumberCiv. A. No. 74-65.
Citation380 F. Supp. 1183
PartiesTYCOM CORPORATION, a Delaware corporation, Plaintiff, v. REDACTRON CORPORATION, a Delaware corporation, and Sperry Rand Corporation, a Delaware corporation, Defendants.
CourtU.S. District Court — District of Delaware

David F. Anderson of Potter, Anderson & Corroon, Wilmington, Del., and Joseph L. Strabala of Phillips, Moore, Weissenberger, Lempio & Strabala, San Francisco, Cal., of counsel, for Tycom Corp.

Douglas E. Whitney of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., and Alan K. Roberts of Posnack, Roberts & Cohen, Camil P. Spiecens of Hane, Baxley & Spiecens, and Bressler, Meislin, Tauber & Lipsitz, New York City, of counsel, for Redactron Corp.

Arthur G. Connolly, Jr. of Connolly, Bove & Lodge, Wilmington, Del., and George P. Williams, III, and James D. Fornari of Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., and David K. Anderson, Leonard E. Dimare and Marshall M. Truex of Sperry Rand Corp., Blue Bell, Pa., of counsel, for Sperry Rand Corp.

OPINION

LATCHUM, Chief Judge.

Defendant Redactron Corporation ("Redactron") has moved to dismiss this action pursuant to Rules 12(b), 17 and 19(a), F.R.Civ.P., on the ground that the plaintiff Tycom Corporation ("Tycom"), although charging the defendants with patent infringement, has failed to join an indispensable party, namely the patent owner.1

Tycom charges, inter alia, infringement by both Redactron and Sperry Rand of United States Patent 3,452,851 (the "Holmes patent") which issued on July 1, 1969 to Lawrence Holmes, Jr. ("Holmes").2 The complaint further alleges that the Holmes patent since it issued has been exclusively licensed to Tycom under the terms of an Agreement dated October 1968 as amended3 ("Agreement"), and that the Agreement grants to Tycom the right to bring infringement suits based on the Holmes patent, without the necessity of joining the patent owner Holmes.

Jurisdiction of the patent infringement claim is conferred on this Court by 28 U.S.C. § 1338(a), and venue is proper under 28 U.S.C. § 1400(b).

Traditionally, courts have held that a general transfer of a whole patent, including the exclusive right to make, use and vend an invention throughout the United States, was an assignment which vested in the transferee the right to sue infringers in his own name. Waterman v. MacKenzie, 138 U.S. 252, 11 S.Ct. 334, 34 L.Ed. 923 (1891). On the other hand, a transferee of a patent, who was granted his interest in the patent under an agreement which is not in legal effect an assignment because certain rights were reserved to the patent owner, generally could not bring suit for infringement in his own name. Waterman, supra; Nordhaus, Patent, Trademark and Copyright Infringement, (1971), pp. 192-196; Deller's Walker on Patents, 2nd edition, pp. 99-103. Thus, historically, the question of whether or not a transferee could sue in his own name without joinder of the transferor depended on whether the transferee received substantially all the patent rights and thus effectively became the owner of the patent, or whether the transferor retained enough patent rights so as to maintain effective legal ownership of the patent. In the former case the transfer was considered an assignment and the transferee could sue in his own right, in the latter case the transfer was considered a license and the transferee could not sue in his own right.

After the adoption of the Federal Rules of Civil Procedure in 1938, courts began to apply Rule 19 in determining the question of when a patent owner, who had transferred an interest in his patent, was an indispensable party to an action on the patent brought by or against his transferee. In United States v. Washington Institute of Technology, 138 F.2d 25 (C.A. 3, 1943) the Third Circuit Court of Appeals found that old Rule 19(a) which required that "those having a joint interest shall be made parties . . ." meant that those who were "indispensable parties" prior to the adoption of the rules were required to be joined. Id. at 25-26. While this language may be interpreted as merely adopting the per se assignee-versus-licensee rule attributed to Waterman, the court did not rely on Waterman, but instead relied upon Shields v. Barrows, 58 U.S. 130, 17 How. 130, 15 L.Ed. 158 (1854) which defined indispensable parties as:

"Persons who not only have an interest in the controversy, but an interest of such a nature that a final decree cannot be made without either affecting that interest, or leaving the controversy in such a condition that its final termination may be wholly inconsistent with equity and good conscience." at 139.

Reliance on Shields was reaffirmed in Shell Development Co. v. Universal Oil Products Co., 157 F.2d 421, 424 (C.A. 3, 1946) where the court quoted with approval the above cited language. In neither Washington Institute nor Shell was Waterman even mentioned, but those cases are unclear whether the Court was interpreting old Rule 19 as abandoning the traditional Waterman test for determining indispensability solely by reference to a characterization of the transferred property interest.4

Later Third Circuit patent cases, however, seemed to return to the per se Waterman test. For example, in Hook v. Hook & Ackerman, 187 F.2d 52 (C.A. 3, 1951), after reducing the issue before the court to a determination of whether or not a patent owner was an indispensable party to a suit on the patent brought against the transferee, the court immediately launched into an analysis of the transfer agreement to determine whether it was a license or an assignment. After considerable reference to Waterman, the court concluded that the transfer in that case was an assignment. The court did consider the possibility of multiple litigation and prejudice to the absent patent owner but concluded with a finding that, since the transfer was an assignment, the patent owner was not an indispensable party. The only reference to Rule 19 came in a long footnote which was prefaced by a statement in the text that ". . . some principles and authorities governing the subject of parties which may be helpful in the study of the main question under discussion in our text . . ." appears in the footnote. The note quotes the rule and then cites a number of cases decided under the rule. Washington Institute is cited in the note as standing for the proposition that "patentees who have parted with all ownership by assignment are not indispensable parties."

Even if Hook were not conclusively a step back to the per se test of Waterman, the case of Hartford National B. & T. Co. v. Henry L. Crowley & Co., 219 F.2d 568 (C.A. 3, 1955) certainly was. In Hartford the court was faced with the issue of whether a New Jersey district court decision, holding that a patent owner was not an indispensable party to a suit on the patent brought against the owner's transferee, was correct. The court made no mention whatsoever of Rule 19 and proceeded to decide the issue in the affirmative solely on the basis that the transfer was an assignment, citing Waterman as sole authority.

Thus, until the adoption of amended Rule 19 in 1966 the criteria for judging when a patentee was an indispensable party to a suit on a patent brought by or against a transferee of interests in the patent was at best confused. In order to understand the effect of amended Rule 19 on the determination of indispensable parties in patent suits, the Court first looks to the Advisory Committee's Note to the 1966 revision, 39 F.R.D. 89-94. That note points out a textual defect in the phrasing of old Rule 19 because it seemed at least superficially plausible to equate the word "indispensable" with the expression "having a joint interest" and thus caused some courts to conclude erroneously that one having a "joint interest" must be joined. Washington Institute, supra, is cited by the Note as an example of a court reaching that conclusion.5 The Note goes on to explain that persons holding an interest technically "joint" are not always so related to the action that it would be unwise to proceed without them, whereas persons holding an interest not technically "joint" may prove to have such a relationship to the action that it should not go on in their absence. 39 F.R.D. at 90.

Amended Rule 19 requires courts to face squarely the pragmatic substantive and procedural considerations which properly should be controlling in determining whether a party is needed for the just adjudication of a case. 2 Federal Practice and Procedure, Barron and Holtzoff, § 512, note 21.9b. The Supreme Court noted in Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 88 S.Ct. 733, 19 L.Ed.2d 936 (1968),6 Rule 19 teaches that whether or not a party is indispensable is the conclusion, not the starting point, of legal analysis:

"The decision whether to dismiss (i. e., the decision whether the person missing is `indispensable') must be based on factors varying with the different cases, some such factors being substantive, some procedural, some compelling by themselves, and some subject to balancing against opposing interests. Rule 19 does not prevent the assertion of compelling substantive interests; it merely commands the courts to examine each controversy to make certain that the interests really exist. To say that a court `must' dismiss in the absence of an indispensable party and that it `cannot proceed' without him puts the matter the wrong way around: a court does not know whether a particular person is `indispensable' until it has examined the situation to determine whether it can proceed without him." 390 U.S. at 118-119, 88 S.Ct. at 743.

That this pragmatic approach to the question of indispensability of parties is to apply to patent cases was made emphatically clear by the Advisory Committee's citation of two patent cases in order to illustrate the proper application of the first factor in Subdivision (b) of amended Rule 19. A. L. Smith...

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