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REMINGTON RAND, INC. v. KNAPP-MONARCH CO.

March 14, 1956

REMINGTON RAND, Inc., Plaintiff,
v.
KNAPP-MONARCH COMPANY, Defendant



The opinion of the court was delivered by: WRIGHT

This is an action for declaratory judgment involving charges made by defendant that plaintiff is infringing its patent. *fn1" Plaintiff, Remington Rand, Inc., is a Delaware corporation with an office and place of business at Philadelphia, Pennsylvania. Defendant, Knapp-Monarch Company, is a Delaware corporation with its principal place of business at St. Louis, Missouri. The defendant, Knapp-Monarch Company, has filed a motion to dismiss the complaint or in lieu thereof to quash the return of summons. Two grounds advanced in support of the motion are improper venue and improper service of process.

The motion to dismiss the complaint on the ground venue is improper raises several problems. The court must first determine whether the general venue statute, 28 U.S.C. § 1391 *fn2" or the special patent venue statute, 28 U.S.C. § 1400(b), *fn3" governs a declaratory judgment action involving construction of a patent. If the general venue statute controls, it must then be decided whether Knapp-Monarch is 'doing business' within the meaning of that statute. If the special patent venue statute is the applicable provision, the court must determine whether the definition of corporate residence in the general venue statute is incorporated into the special patent venue statute.

 The defendant asserts a declaratory judgment action for non-infringement of a patent is a patent suit in reverse, and therefore the special patent venue statute, 28 U.S.C. 1400(b), applies. Because defendant's argument ignores the wording of the statute it cannot be sustained. The special patent venue statute applies to 'any civil action for patent infringement' *fn4" and does not apply to a declaratory judgment action for non-infringement of a patent. Furthermore, if the special patent venue statute controlled, venue in a declaratory judgment action for non-infringement of a patent would be restricted to the state of incorporation unless the meaning of corporate residence as defined in § 1391(c) were incorporated into § 1400(b). *fn5" This necessarily would be the result because in a suit for declaration of non-infringement of a patent, the complaint would never allege commission of acts of infringement since the alleged patent owner is always the defendant. Finally, there is a considerable body of authority, both before and after revision of the Judicial Code, to the effect that the controlling venue provision in declaratory judgment actions for non-infringement of a patent is the general venue statute. *fn6"

 Among these authorities is Crosley Corporation v. Westinghouse Electric & Manufacturing Co., *fn7" which defendant correctly asserts stands for the proposition that 'declaratory judgment suits can only be brought in the home district of a patent owner or, in the case of a corporate owner, in those foreign states only in which it has made arrangements to be served with process, * * *.' *fn8" However, on petition for rehearing in the Crosley case it was emphatically pointed out that while the venue of a patent infringement suit is governed by the special patent venue section, declaratory judgment actions for non-infringement of a patent are controlled by the general venue provision. *fn9" Since the general venue statute upon which the Third Circuit based its formulation has been amended, *fn10" the correct venue for a declaratory judgment action for non-infringement of a patent has likewise been broadened in conformity with the amendment. Thus the general venue provision, 28 U.S.C. § 1391, is the controlling venue section in a declaratory judgment action for non-infringement of a patent, and therefore, it is unnecessary to determine whether the definition of corporate residence found in § 1391(c) is incorporated into § 1400(b). *fn11" However, there remains the problem of whether the Eastern District of Pennsylvania is a proper venue for this action. The solution to this problem depends upon whether the activity of Knapp-Monarch within the Eastern District of Pennsylvania constitutes 'doing business' within the meaning of 28 U.S.C. § 1391(c).

 Congress has defined the proper locality for the trial of a case against a foreign corporation. *fn12" Thus, a foreign corporation may be sued: 1) where it is incorporated, 2) where it is licensed to do business, or 3) where it is doing business. Where as here, the foreign corporation is neither incorporated, nor licensed to do business in the district in which suit is instituted, the problem arises as to what degree of activity within the district a foreign corporation must engage before a particular district becomes a proper locality in which to compel a foreign corporation to initially defend.

 Neither § 1391(c) nor the Reviser's notes supply any direct indication as to the proper frame of reference to be employed in deciding how much activity a foreign corporation must engage before it is held to be 'doing business'. However, a strong hint as to Congressional intent is found by examination of 1391(c) and its background. The background of § 1391(c) is found mainly in the decision of the Supreme Court in Neirbo Co. v. Bethlehem Shipbuilding Corp., Ltd. *fn13" and the myriad of unanswered questions which arose in the wake of that decision. The Neirbo case held a foreign corporate defendant waived the provisions of the federal venue statute, which it would otherwise have been able to assert, when it appointed an agent for receipt of service of process as required by the law of the state in which the corporation was doing business. The applicable venue statute *fn14" at the time of the Neirbo decision provided suits under federal laws must be brought in the district of the defendant's residence, and in diversity cases in the district in which either the plaintiff or defendant resided. The immediate effect of Neirbo was to substantially broaden by judicial construction the narrow venue choice conferred upon plaintiff by statute. *fn15"

 The problem arose as to whether the Neirbo rule applied to foreign corporations which violated state laws by refusal or failure to appoint an agent to accept service of process as a condition precedent to doing business within the state. Some federal courts held it did not, i.e., failure to appoint a statutory agent for receipt of service of process resulted in non-waiver of the privilege of asserting the venue defense. *fn16" Thus, the anomalous result was produced whereby law abiding corporations waived their venue privilege while non-conforming corporations, by reason of their refusal to obey state law, were able to assert a venue defense.

 Upon revision of the Judicial Code, Congress, in effect, adopted the result of the Neirbo case in enacting the venue provision of the Judicial Code dealing exclusively with corporate defendants. *fn17" Congress achieved the result of Neirbo, without reliance upon a concept of waiver or reference to appointment of a statutory agent, by making the focal point of the statute the obtaining of a license to do business by the corporation. At the same time the result of those decisions which conferred the venue defense on the non-conforming corporation was removed by providing venue would be proper if a corporation were 'doing business' within the district.

 Viewed in this background, Congressional intent as to the proper frame of reference to be employed in defining 'doing business' as used in § 1391(c) becomes clear. In determining how much activity within a district a foreign corporation must engage before such activity will constitute 'doing business' for purposes of federal venue, the basic consideration is whether a license would be required of the foreign corporation as a condition precedent to carrying on that activity. However, it would be erroneous to make the propriety of venue dependent upon the licensing law of any one particular state, since determination of the correctness of plaintiff's choice of locality for his law suit against a corporate defendant necessarily envisages application of a uniform federal standard. At the same time, a test for 'doing business' which requires examination of the laws of all the states to determine whether any one state might require a license on the basis of the activity engaged in would be a useless yardstick.

 No attempt will be made to establish criteria which definitively mark the boundary line between proper and improper venue. Congress has decreed state licensing requirements closely approximate the desired balance between the aggrieved plaintiff who might be penalized if the foreign corporation were not required to answer in any vicinity where its activity might cause an alleged injury and the resulting inconvenience to the foreign corporation forced to defend far from home. With this balance as a guiding principle, it can be said the activity must be of such a nature so as to localize the business and make it an operation within the district.

 The court is not unmindful of the force of the argument that 'doing business' in § 1391(c) means 'doing business for purposes of service of process.' *fn18" The courts holding this view buttress their argument by pointing to the Neirbo decision which, because of the waiver principle employed, had as its foundation, the appointment of an agent for receipt of service of process.

 Since 'doing business' can mean doing business for purposes of requiring a foreign corporation to be licensed or doing business for purposes of amenability to service of process, it must be determined whether there is any difference in the amount of activity in which a foreign corporation must engage before it will be held to be 'doing business' for either purpose.

 There is a distinction between the activity necessary to constitute the doing of business so as to be amenable to service of process and the activity necessary to constitute the doing of business so as to be subject to licensing statutes. *fn19" The prevailing dogma indicates more activity is required for the doing of business for the latter purpose than for the former, *fn20" notwithstanding the absence of a due process constitutional limitation on the power of a state to require a license of a foreign corporation. *fn21" Therefore whether 'doing business' in 1391(c) relates to that amount of activity as used to determine whether a foreign corporation must procure a license or as used in solution of service of process questions will directly affect the breadth of the venue provision. *fn22"

 On the wording of the statute alone, it makes far better sense to say the phrase, 'doing business', was inserted to deprive the non-conforming corporation of a venue defense, rather than to say the phrase refers to the unmentioned service of process concept. Further, if the service of process concept of doing business were used to determine whether a venue choice is proper, the ultimate result would be that venue is proper wherever a corporation is subject to service of process. Since Congress did not articulate such a wide sweeping venue provision, it is difficult to perceive that it ever intended such a result. In fact, that such was not the intended result becomes obvious by an examination of 28 U.S.C. § 1406(a), which provides among other things for transfer to another district in the event of improper venue. If venue were improper by reason of the employment of the service of process concept of 'doing business', it would mean that wherever venue would be improper there would also be a fatal service of process defect so as to bar transfer and leave dismissal for lack of jurisdiction over the defendant as the only remedy. It can be argued that the provision of § 1406(a) applies ...


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