Zenie v. Miskend , 284 N.Y.S. 63 ( 1935 )

Untermyer, J.

The Special Term denied the defendants’ motion to dismiss the complaint made upon the grounds (1) that it fails to state facts sufficient to constitute a cause of action; (2) that the court has not jurisdiction of the subject of the action, and (3) that there is another action pending between the same parties for the same cause.

The action is at law for damages resulting from alleged unfair methods of competition on the part of the defendants. The complaint alleges that the plaintiffs for many years have manufactured a particular kind of seam used in the production of garments. They do not allege nor contend that they have any patent on the seam. On the contrary, it is their claim that the seam is not patentable because it has been in common use for a long period of time.

The complaint alleges that the defendants, competitors of the plaintiffs, obtained a United States patent on the seam upon false statements to the Patent Office, well knowing that the seam had been in public use for many years not only by the plaintiffs but by others and, therefore, was not patentable. It is further alleged that the defendants, though knowing their patent to be void, by notices to the trade have threatened with infringement suits persons who purchase such seams otherwise than from them, thereby inflicting serious injury on the plaintiffs’ business. For these acts of alleged unfair competition damages are demanded but no equitable relief.

The plaintiffs first instituted an action in equity in the United States District Court for the Southern District of New York upon a bill of complaint containing two counts: The first, for a declaratory judgment declaring the defendants’ patent to be void; the second, for an injunction restraining the defendants from the same acts of alleged unfair competition of which the plaintiffs now complain. The District Court held (10 Fed. Supp. 779) that the count for a declaratory judgment concerning the validity of the defendants’ patent was maintainable in the Federal court, but that in the absence of diversity of citizenship it had no jurisdiction of the count demanding an injunction against acts of unfair competition. The court said: “ On the count for unfair competition, the defendants’ motion is well taken. There is no diversity of citizenship, one of the plaintiffs being a citizen of the same State as the defendants. [Strawbridge v. Curtiss, 3 Cranch, 267.] The cause of action for unfair competition is pleaded as a separate and distinct one. There is then no jurisdiction in a Federal court to try the issue of unfair competition, whatever the sufficiency of the other cause of action. (Hurn v. Oursler, 289 U. S. 238, 248.) ”

Thereupon the plaintiffs instituted this action for damages for unfair competition, which the District Court had held not to be within its jurisdiction and over which, it is now contended by the defendants, the courts of this State also have no jurisdiction. Of course, if this be so, then there is no forum which is competent to accord relief.

The first and third branches of the motion may first be considered. It is first contended that the complaint does not state a cause of action and the opinion of the District Court, citing Emach v. Kane (34 Fed. 46), is referred to as sustaining that contention. We think the District Court did not so hold. The bill in the Federal court was in equity and thereby the plaintiffs sought to enjoin the defendants from circulating among the plaintiffs’ customers notices falsely stating that the plaintiffs might not lawfully manufacture and sell the seam because it constituted an infringement of the defendants’ patent. Of course, an action for an injunction restraining the defendants from such a publication, though unlawful, could not be maintained for reasons which are self-evident and fundamental. (N. Y. Const, art. 1, § 8; Marlin Fire Arms Co. v. Shields, 171 N. Y. 384.) It could not be maintained even if these statements were made without intent to follow them with infringement suits. The suggestion to the contrary in Emach v. Kane (supra) has been expressly disapproved. (Marlin Fire Arms Co. v. Shields, supra.) The plaintiffs, however, are not without a remedy at law for unfair competition, if they are able to establish that the defendants are attempting to alienate their customers by false statements that the plaintiffs have no right to sell nor the customers to buy the seam on account of the existence of a patent which they know to be void. In this respect it is as if the defendants were engaged in falsely stating to the trade that the plaintiffs’ product was unfit for use or that they were selling stolen merchandise.

The contention likewise is not tenable that this motion cannot be maintained on account of the pendency of the action in the United States court. That action is for a declaratory judgment concerning the validity of the defendants’ patent. In that action, as it now exists, no damages are demanded nor could be awarded to the plaintiffs. The present action is for the damages sustained by the plaintiffs in consequence of false statements circulated in the trade. Since the plaintiffs cannot secure in the United States court the only relief which they seek in this action, it is manifest that the pendency of the Federal action constitutes no bar. (Clephane Equity Pleadings and Practice, p. 180, and cases cited.)

This leaves for consideration the question whether the State court rather than the Federal court has jurisdiction of this action — a jurisdiction which, it may be observed, the Federal court has already declined to entertain. In considering that question it must be remembered that the plaintiffs do not assert any right under any patent. Their cause of action is for unfair competition upon allegations that the defendants are falsely asserting that the plaintiffs have no right to manufacture this particular kind of seam. Although it is evident that in the course of the litigation it may become necessary to determine the validity of the defendants’ patent, that question is incidental and collateral to the determination of the question of unfair competition. The same would be true if it should appear that the defendants had made these assertions without securing any patent at all, or, by means of a forged patent, were attempting to intimidate the plaintiffs’ customers. In all such cases the cause of action would be for unfair competition and not upon a patent right. It would not present a “ case ” arising under the patent laws even though the “ question ” of the validity of a patent might arise and require determination. The rule has been formulated by the Supreme Court of the United States as follows: “ To constitute such a cause [a cause arising under the patent laws of the United States] the plaintiff must set up some right, title or interest under the patent laws, or at least make it appear that some right or privilege will be defeated by one construction or sustained by the opposite construction of these laws. * * * There is a clear distinction between a case and a question arising under the patent laws. The former arises when the plaintiff in his opening pleading — be it a bill, complaint or declaration —■ sets up a right ■under the patent laws as ground for a recovery. Of such the State courts have no jurisdiction. The latter may appear in the plea or answer or in the testimony. The determination of such question is not beyond the competency of the State tribunals.” (Pratt v. Paris Gas Light & Coke Co., 168 U. S. 255, 259.) It is, therefore, no objection to the jurisdiction of the State court that, as an incident to the determination of the common-law right asserted by the plaintiffs, it will be necessary for the State court to determine the validity of the patent on which the defendants rely to justify their statements to the trade. In the case last cited, the action was to recover the price of a patented machine sold to the defendant. The defendant, as a defense, asserted that the plaintiff’s patent constituted an infringement upon prior patents, in consequence of which the defendant was unable to use the machine. Thus, the decisive issue in the State court was whether the plaintiff's patent was a valid one or whether it was void as an infringement upon earlier patents. Nevertheless, it was held that since the plaintiff was not relying on any patent right in order to recover but was asserting only a right at common law, the State court has jurisdiction to the exclusion of the Federal courts. Similarly, in Middlebrook v. Broadbent (47 N. Y. 443), the action was to cancel a bond given by the defendants to the plaintiff in connection with the sale of a machine, and conditioned upon the validity of certain patents pertaining to it. It was held that even though the only question presented was the validity of these patents, the action was not upon any statute of the United States but upon a contract or bond, and was properly instituted in the State court. Peckham, J., said (p. 446): “ It will be observed that this is an action founded entirely upon the bond, but it appeals to the equity powers of the court for relief. It is not an action upon any statute of the United States. It is founded upon this bond or contract. In such case a State court has jurisdiction. * * * It is held that a State court has no jurisdiction of an action for an infringement of a patent. That would necessarily be founded upon the action of Congress. [Gibson v. Woodworth, 8 Baige, 132; Parkhurst v. Kinsman, 2 Halst. Ch. (6 N. J. Eq.) 600; Parsons v. Barnard, 7 J. R. 144; Dudley v. Mayhew, 3 Coms. (N. Y.) 9; Tomlinson v. Battel, 4 Abb. Pr. 266.] These cases, however, do not decide that an action upon a contract cannot be maintained, because the validity of a patent may be involved therein. Nor are they inconsistent with such a position.”

These principles serve to distinguish the decisions on which the defendants rely. In Continental Store Service Co. v. Clark (100 N. Y. 365) it was held (Andrews, Rapadlo and Danforth, JJ., dissenting) that the State court had no jurisdiction to restrain a defendant from using a patent issued to him by the United States where both parties asserted rights thereunder and the effect of the injunction was to determine which of the parties was guilty of infringement. It may also fairly be contended that this case is overruled by the later decision in New Era Electric Range Co. v. Serrell (252 N. Y. 107). In Hovey v. Rubber Tip Pencil Co. (57 N. Y. 119), also relied on by the defendants, the plaintiffs asserted rights under a patent issued to them and not, as in the instant case, a common-law right to manufacture free from illegal interference by means of false statements to the trade. Jurisdiction was refused because the cause of action was “ founded upon the right of the plaintiffs under the patent law.” That case illustrates the very distinction which is present here, for, as we have said, the test of jurisdiction is whether, in order to recover, the plaintiffs must rely upon a patent right. If the plaintiffs need not rely upon a patent right, then they may maintain this action in the courts of this State. Here they are asserting a common-law right to damages for unfair competition which they enjoy, not in consequence of any patent, but together with every other person within the jurisdiction of the State. They cannot be deprived of the right to maintain an action of this character in the courts of this State because the defendants have asserted to the trade and are now insisting in justification of their acts that they are the owners of a patent. If the cause of action were for libel, as upon these facts it might have been, it would hardly be contended that the State courts would not have jurisdiction.

The order should be affirmed, with twenty dollars costs and disbursements, with leave to the defendants to answer within twenty days after service of order on payment of said costs.

McAvoy and O’Malley, JJ., concur; Martin, P. J., and Mereell, J., dissent and vote to reverse and grant the motion.