Source: https://m.openjurist.org/333/us/795/united-states-v-scophony-corporation-of-america
Timestamp: 2019-05-26 17:08:24
Document Index: 230318811

Matched Legal Cases: ['§ 12', '§ 12', '§ 7', '§ 7', '§ 12', '§ 7', '§ 12', '§ 12', '§ 12', '§ 7', '§ 12', '§ 12', '§ 7', '§ 12', '§ 12', '§ 12', '§ 12', '§ 12', '§ 12', '§ 12', '§ 2', '§ 29', '§ 29', '§ 238', '§ 345', '§ 345', '§ 12', '§ 12', '§ 7', '§ 12', '§ 7', '§ 12']

333 U.S. 795 - United States v. Scophony Corporation of America
333 US 795 United States v. Scophony Corporation of America
The argument was certainly plausible, but for the fact that it made the addition of 'or transacts business' to 'inhabitant' and 'found' in § 12 redundant and meaningless. The Court refused to accept the argument, because doing so would have defeated the plain remedial purpose of § 12.16 That section was enacted, it held, to enlarge the jurisdiction given by § 7 of the Sherman Act over corporations by adding those words, 'so as to establish the venue of such a suit not only, as theretofore, in a district in which the corporation resides or is 'found,' but also in any district in which it 'transacts business'—although neither residing nor 'found' therein—in which case the process may be issued to and served in a district in which the corporation either resides or is 'found." 273 U.S. at page 372, 47 S.Ct. at page 403.17
This construction gave the words 'transacts business' a much broader meaning for establishing venue than the concept of 'carrying on business' denoted by 'found' under the preexisting statute and decisions. The scope of the addition was indicated by the statement 'that a corporation is engaged in transacting business in a district * * * if in fact, in the ordinary and usual sense, it 'transacts business' therein of any substantial character.' Id. 273 U.S. at page 373, 47 S.Ct. at page 403. (Emphasis added.)
In other words, for venue purposes, the Court sloughed off the highly technical distinctions theretofore glossed upon 'found' for filling that term with particularized meaning, or emptying it, under the trn slation of 'carrying on business.' In their stead it substituted the practical and broader business conception of engaging in any substantial business operations. Cf. Frene v. Louisville Cement Co., 77 U.S. App.D.C. 129, 134 F.2d 511, 146 A.L.R. 926; International Shoe Co. v. Washington, supra. Refinements such as previously were made under the 'mere solicitation' and 'solicitation plus' criteria, cf. Frene v. Louisville Cement Co., supra, and like those drawn, e.g., between the People's Tobacco and International Harvester cases, supra, were no longer determinative. The practical, everyday business or commercial concept of doing or carrying on business 'of any substantial character' became the test of venue.
Applying it, the Court stated that 'manifestly' the Eastman Company was not 'present' in the Georgia district under the earlier tests of § 7 of the Sherman Act, either for the purpose of venue or as being amenable to service of process. 273 U.S. at page 371, 47 S.Ct. at page 402. It thus aligned the case under those tests with the People's Tobacco decision rather than the International Harvester one. But, under the broader room given by § 12, venue was held to have been established.18
Thus, by substituting practical, business conceptions for the previous hairsplitting legal technicalities encrusted upon the 'found'-'present'-' carrying-on-business' sequence, the Court yielded to and made effective Congress' remedial purpose. Thereby it relieved persons injured through corporate violations of the antitrust laws from the 'often insuperable obstacle' of resorting to distant forums for redress of wrongs done in the places of their business or residence. A foreign corporation no longer could come to a district, perpetrate there the injuries outlawed, and then by retreating or even without retreating19 to its headquarters defeat or delay the retribution due.
With venue established under the new and broader approach, the Eastman case presented no problem regarding the service of process, except possibly for the ruling that process might run to another district than the one in which suit was brought. 273 U.S. at page 374, 47 S.Ct. at page 403. For by whatever test, whether of the old § 7 or the new § 12, the service was good As we have noted, the process had been directed to and served in the district where the Eastman Company was an 'inhabitant.'20 There was therefore no necessity for ruling upon the meaning of 'found' as relating to any other district. Any such ruling necessarily could be no more than dictum, since no such issue was presented by th facts.
Nevertheless, for service of process § 12 had specified 'the district of which it is an inhabitant, or wherever it may be found' without adding 'or transacts business,' as was done in the venue clause. Accordingly the Court took account of this difference and went on to indicate that for purposes of liability to service the section merely carried forward the preexisting law, so that in some situations service in a district would not be valid, even though venue were clearly established under § 12.21
But regardless of the pronouncement's effect, the decision, by resolving the venue problem, substantially removed the serious obstacles and practical immunities to suit which had grown up under § 7 of the Sherman Act, in by far the larger number of antitrust cases, i.e., for those not involving companies incorporated outside the United States. In them the fact that service may be dubious in the district of suit and can be assured only by causing process to run to another district, as in the Eastman case, presents no such obstacle to bringing and maintaining the suit as existed prior to § 12. The necessity, if it is that, for directing process to another district, creates at most some slight inconvenience and additional expense.
In this case, however, we deal with a company incorporated outside the United States. But there can be no question of the existence of 'jurisdiction,' in the sense of venue under § 12, over Scophony in the Southern District of New York. To say that on the facts presented Scophony transacted no business 'of any substantial character' there during the period covered by institution of the suit and the times of serving process would be to disregard the practical, nontechnical, business standard supplied by 'or transacts business' in the venue provision. It would be also to ignore the fact that Scophony then and there was carrying on largely, if not exclusively, the only business in which it could engage at the time.
Scophony's operations in New York were a continuous course of business before and throughout the period in question here. They consisted in strenuous efforts not simply to save an American 'investment,' as is urged, but to salvage and resuscitate Scophony's whole enterprise from the disasters brought upon it by the war. As with such efforts generally, changes in method and immediate objective took place as each one tried in turn failed to work out. But those changes brought none in ultimate objective, namely, to find a mode of saving and profitably exploiting the Scophony inventions; and none in the intensity or continuity with which that object was pursued in New York.
First was the phase of attempting to set up in this country as manufacturer and seller of television equipment. When that failed, the company turned to licensing and exploiting its patents by other means. This was done through the complicated arrangements for what practically if not also technically was a joint adventure with other companies. That project was carried out not merely through corporate forms and arrangements but by contracts binding the participating companies to the common enterprise, as well as the special medium of executing it, American Scophony. In this each corporate pat icipant had its special functions, controls and restrictions created in part by share ownership in American Scophony, but also in important respects by contract both beyond the stock controls and dictating their character.22 Finally, as the affairs of the keystone of the structure, American Scophony, came to and continued in stalemate, the immediate objective shifted once more, to getting out of the trap. Again the shift was in direct and constant pursuit of Scophony's primary and continuing object, to find a way to save and to exploit its patents.
To this view of the sequence of events appellee then seeks to apply this Court's decisions interpreting 'found' under § 7 and similar requirements in application to manufacturing and selling companies,23 and also the like Eastman dictum concerning § 12. In doing this it seeks especially to invalidate the service by casting up from those decisions a check list of specific and often minor incidents of that sort of business done or not done as relevant to whether business is being carried on, and then matching against the list Scophony's New York activities as of the times of service.24
Certainly appellee's conclusionary premise cannot be accepted, that its sole authorized or actual business was manufacturing and selling equipment; or therefore the further one that no other activity on its behalf could constitute doing or engaging in business. Indeed it was authorized to take out, hold and exploit television patents, and doing this was certainly as much part of its business as manufacturing and selling the equipment they covered. There is nothing to show that Scophony was restricted by its charter or otherwise to exploiting its patents exclusively by direct manufacture and sale. When therefore, after that method had failed, the company chose another, it was not ceasing to do business. That consequence did not follow merely because it discontinued the activities incident to continuing the discarded method.
The alternative one chosen was not a matter simply of licensing patents to others, for active exploitation by them. Nor was it only a casual act or acts of contracting. The whole framework of this phase of the New York activities was dictated by the master and supplemental agreements. These were not mere licensing arrangements, nor did they make Scophony nothing more than a shareholder for investment purposes, with only such a shareholder's voting rights and control in American Scophony. The contracts created controls in Scophony, and in the American interests as well, which taken in conjunction with the stock controls called for continuing exercise of supervision over and intervention in American Scophony's affairs.25 We need not decide whether, in view of the agreements' continuing and pervasive effects, they could be considered as sufficing in themselves to make Scophony 'found' within the New York district.26 Whether so or not, they set the pattern for a regular and continuing program of patent exploitation requiring, as we have said, Scophony's constant supervision and intervention.
Moreover, other individuals carried on for Scophony in continuing efforts27 to resolve the impasse. Apart from what was done by others, Elcock came to New York with unrestricted and irrevocable power to act on Scophony's behalf. Indeed it might almost be said in view of his triple position as mortgagee, corporate officer and attorney-in-fact, that for all relevant purposes at this phase of Scophony's activity he was the company. The stalemate put Scophony's affairs in this country at a standstill along with those of American Scophony. And Scophony's efforts to extricate itself were both strenuous and continuous.
Those efforts were not cessation of engaging in business. They were directed entirely to warding off that fate. Their object was not to liquidate, it was to resuscitate the business of Scophony and, as in all previous stages, put it on a normal course again. In doing all this, Scophony was engaging in business constantly and continuously, not retiring from it or interrupting it. Cf. Connecticut Mutual Life Insurance Co. v. Spratley, 172 U.S. 602, 19 S.Ct. 308, 43 L.Ed. 569; Pennsylvania Lumbermen's Insurance Co. v. Meyer, 197 U.S. 407, 25 S.Ct. 483, 49 L.Ed. 810; St. Louis Southwestern R. Co. v. Alexander, 227 U.S. 218, 33 S.Ct. 245, 57 L.Ed. 486, Ann.Cas.1915B, 77. The interruptions were only in particular phases of its authorized adventure, not in the continuity, intensity or totality of the adventure itself.
In sum, we have no such situation as was presented in the manufacturing and selling cases on which appellee relies. They concerned entirely different facts and enterprises. In none was there a shifting from a course of business in pursuit of one corporate object or objects, viz., manufacturing and selling, to another continuing mode of achieving a basic corporate objective, namely, the exploiting of patents by complex working arrangements partaking practically of the character of a common enterprise with others and requiring constant supervision and intervention beyond normal exercise of shareholders' rights by the participating companies' representatives qua such.
For present purposes those decisions may be left untouched for the facts and situations in which they have arisen and to wi ch they have been applied. But there could be no valid object in expanding their pulverizing approach to situations as different and distinct as this one, comprehended within neither their rulings nor their effects. More especially would such an extension be inappropriate, when it is recalled that § 12 governs venue and service in antitrust suits against corporations. For, in cases against companies incorporated outside the United States, that extension would bring back all the obstacles to enforcement of antitrust policies and remedies which existed for domestic corporations before § 12 was enacted to give relief from those obstacles. Even though venue were clearly established, as here, the extension often would make valid service impossible, since process could not be issued to run for such corporations to the foreign countries of which they are 'inhabitants.' We are unwilling to construe § 12 in a manner to bring back the evils it abolished, for situations not foreclosed by prior decisions, and thus to defeat its policy together with that of the antitrust laws, so as to make another amendment necessary.
We think that Scophony not only was 'transacting business' of a substantial character in the New York district at the times of service, so as to establish venue there, but also on the sum of the facts regarding its activities was 'found' there within the meaning of the service-of-process clause of § 12. Of course such a ruling presents no conceivable element of offense to 'traditional notions of fair play and substantial justice.' See International Shoe Co. v. Washington, supra, 326 U.S. at page 316, 66 S.Ct. at page 158; cf. Hutchinson v. Chase & Gilbert, 2 Cir., 45 F.2d 139, 141.
The only question in this case is whether Scophony limited, a British corporation, which has its offices and principal place of business in London, may be made a party defendant in a suit by the United States for violation of the Sherman Law pending in the Southern District of New York. The corporation may be brought into court in that District if its activities there satisfy the requirements of § 12 of the Clayton Act. According to this provision, Scophony Limited is properly a party defendant in this suit only if, by virtue of its activities, it is 'found or transacts business' in the Southern District of New York, and it may be served in that District if it is 'found' there.
What was done in the Southern District of New York on behalf of Scophony Limited, as detailed in the Court's opinion, establishes that the corporation was there transacting business and was found there in the ol y sense in which a corporation ever 'transacts business' or is 'found.' Accordingly, Scophony Limited was amenable to suit and service in the District within the requirements of § 12 of the Clayton Act.
To reach this result, however, I do not find it necessary to open up difficult and subtle problems regarding the law's attitude toward corporations. I abstain from joining the Court's opinion not because I am in disagreement with what is said but because I am not prepared to agree. And I am not prepared to agree because I do not wish to forecast, which agreement would entail, the bearing of the Court's discussion upon situations not now before us but as to which such theoretical discussion is bound to be influential. Law, no doubt, is concerned with 'practical and substantial rights, not to maintain theories.' Davis v. Mills, 194 U.S. 451, 457, 24 S.Ct. 692, 695, 48 L.Ed. 1067. But theories often determine rights. Since I do not know where the opinion in this case will take me in the future, I prefer to reach its destination by the much shorter route of recognizing that a corporation as such never transacts business and is never found anywhere, but does 'transact business' and is 'found' somewhere by attribution to the corporation of what human beings do for it. No doubt legal reasoning must be on its guard not to oversimplify. Dangers also lurk in over-complicating.
From earliest times the law has enforced rights and exacted liabilities by utilizing a corporate concept—by recognizing, that is, juristic persons other than human beings. The theories by which this mode of legal operation has developed, has been justified, qualified, and defined are the subject matter of a very sizable library. The historic roots of a particular society, economic pressures, philosophic notions, all have had their share in the law's response to the ways of men in carrying on their affairs through what is now the familiar device of the corporation. Law has also responded to religious needs in recognizing juristic persons other than human beings. Thus, in the Hindu law an idol has standing in court to enforce its rights. See e.g., Pramatha Nath Mullick v. Pradyumna Kumar Mullick, 52 L.R.I.A. 245 (1925). Attribution of legal rights and duties to a juristic person other than man is necessarily a metaphorical process. And none the worse for it. No doubt, 'metaphors in law are to be narrowly watched,' Cardozo, J., in Berkey v. Third Avenue R. Co., 244 N.Y. 84, 94, 155 N.E. 58, 61, 50 A.L.R. 599. But all instruments of thought should be narrowly watched lest they be abused and fail in their service to reason.
The suit was instituted against Scophony, Limited (designated in this opinion as 'Scophony'), Scophony Corporation of America (designated 'American Scophony'), General Precision Equipment Corporation (designated 'General Precision'), Television Productions, Inc. (designated 'Productions'), Paramount Pictures, Inc. (designated 'Paramount'), and three individual defendants, Arthur Levey and the presidents of General Precision and Productions. The corporations, except Scophony, are incorporated in the United States.
Pursuant to § 2 of the Expediting Act of February 11, 1903, 32 Stat. 823, 15 U.S.C. § 29, 15 U.S.C.A. § 29, and § 238 of the Judicial Code, 43 Stat. 938, 28 U.S.C. § 345, 28 U.S.C.A. § 345.
The inventions and patents in the main relate to two systems of television transmission and reception, one known as the 'supersonic' system and the other as the 'skiatron' system. We shall at times refer to the present and future patents, processes, designs, technical data, etc., relating to these two systems as the Scophony inventions.
An agreement of February 4, 1943, amended the original agreement so as to give two-thirds of the 'A' shares to Scophony, the remainder to individuals.
The complaint alleged that the effects of the agreements and understandings were to create a territorial division of the manufacture and sale of television products, assigning the Eastern Hemispe re to Scophony and the Western Hemisphere to General Precision and Productions; to suppress and restrain competition in the manufacture and sale of television equipment, both in the domestic and in the export markets; and to give General Precision and Productions monopoly power over the Scophony inventions which enabled them to suppress their exploitation and deprive others of their use.
These included at various times two American attorneys, a member of the British Parliament, and an English officer.
Levey immediately informed Scophony in England of this action and advised it to designate appropriate counsel. On December 21, 1945, he sent a copy of the complaint to Scophony by airmail.
The power of attorney set forth Scophony's desire to appoint Elcock to act 'and bind the Company in all or any matters affecting the Company's interests in the United States * * *.' It then authorized Elcock to institute and prosecute all proceedings necessary to conserve Scophony's interests; to defend or compromise any suits brought against Scophony; to settle accounts; to engage or dismiss subagents; to borrow money; to dispose of any and all of Scophony's property and interests in the United States; and 'generally to represent the Company in the United States of America in all matters in any way affecting or pertaining to the Company * * *.'
More than once Marshall had difficulty in transferring to corporations or other institutions legal conceptions and relations shaped in nomenclature and in fact from normative evolution in relation to persons of flesh and blood.
See, e.g., Bank of the United States v. Deveaux, 5 Cranch 61, 3 L.Ed. 38, where he was unable to adapt the concept of corporate 'inhabitancy,' applied in decisions he cited, for fitting the corporation into the constitutional scheme of diversity jurisdiction. His individualistic solution brought difficulties which lasted for decades. See Henderson, The Position of Foreign Corporations in American Constitutional Law 50—76; Harris, A Corporation As a Citizen, 1 Va.L.Rev. 507. Cf. Baptist Association v. Hart's Executors, 4 Wheat. 1, 4 L.Ed. 499.
The very federalism of our structure magnifies the problem, by multiplying state and other governmental boundaries across which corporate activity runs with the greatest freedom. The problem arises on constitutional as well as statutory and common-law levels. Cf. International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, 161 A.L.R. 1057; Puerto Rico v. Russell & Co., 288 U.S. 476, 53 S.Ct. 447, 77 L.Ed. 903.
Appellee makes no suggestion of a constitutional issue. The Government, however, suggests that, in view of our recent decision in International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, 161 A.L.R. 1057, which was concerned with the jurisdiction of a state over a foreign corporation for purposes of suit and service of process, and in view of aspects of similarly between that problem and the one now presented, we extend to this case and to § 12 the criteria there formulated and applied. There is no necessity for doing so. The facts of the two cases are considerably different and, as we have said, we are not concerned here with finding the utmost reach of Congress' power.
The Court said: 'The general rule deducb le from all our decisions is that the business must be of such nature and character as to warrant the inference that the corporation has subjected itself to the local jurisdiction, and is by its duly authorized officers or agents present within the state or district where service is attempted. Philadelphia & Reading Ry. Co. v. McKibbin, 243 U.S. 264, 37 S.Ct. 280, 61 L.Ed. 710; St. Louis Southwestern Ry. Co. v. Alexander, 227 U.S. 218, 226, 33 S.Ct. 245 (247), 57 L.Ed. 486, Ann.Cas.1915B, 77.' 246 U.S. 79, 87, 38 S.Ct. 233, 235.
Counsel for the defendant equated the words 'inhabitant' and 'found' of § 12 to 'resides or is found' of § 7 of the Sherman Act. They then went on to argue that the addition of 'or transacts business' in the venue clause of § 12 did not broaden the section, but merely made explicit what the Court had already decided under the earlier statute. 273 U.S. at page 361, 47 S.Ct. at page 401. This, because 'or transacts business' was said to be nothing more than 'carrying on business,' which was the content the Court had given to 'is found' in § 7, by the People's Tobacco case and others.
Rather, the Court said, the section supplements 'the remedial provision of the Anti-Trust Act for the redress of injuries resulting from illegal restraints upon interstate trade, by relieving the injured person from the necessity of resorting for the redress of wrongs committed by a nonresident corporation, to a district, however distant, in which it resides or may be 'found'—often an insuperable obstacle—and enabling him to institute the suit in a district, frequently that of his own residence, in which the corporation in fact transacts business, and bring it before the court by the service of process in a district in which it resides or may be 'found." 273 U.S. 359, 373, 47 S.Ct. 400, 403. (Emphasis added.)
See also note 16.
The concrete facts held to sustain the venue were that the Eastman Company was engaged 'not only in selling and shipping its goods to dealers within the Georgia district, but also in soliciting orders therein through its salesmen and promoting the demand for its goods through its demonstrators for the purpose of increasing its sales * * *.' 273 U.S. at page 374, 47 S.Ct. at page 404.
The Court also expressly stated that, in contrast to prior limitations, the company was 'none the less engaged in transacting business * * * because of the fact that such business may be entirely interstate in character and be transacted by agents who do not reside within the district,' referring in this connection to International Harvester Co. v. Kentucky, 234 U.S. 579, 587, 34 S.Ct. 944, 946, 58 L.Ed. 1479, and Davis v. Farmers' Co-operative Equity Co., 262 U.S. 312, 316, 43 S.Ct. 556, 557, 67 L.Ed. 996. 273 U.S. 359, 373, 47 S.Ct. 400, 403.
I.e., by artful arrangement of agents' authority, or of their comings and goings, or of the geography of minute incidents in contracting. Cf. People's Tobacco Co. v. American Tobacco Co., 246 U.S. 79, 38 S.Ct. 233, 62 L.Ed. 587, Ann.Cas.1918C, 537. Such artifice saw its day end for creating substantive liability through a course of dealing contrary to the antitrust statutes, but without thereby also creating venue to enforce it, with the advent of § 12.
As has been stated, the company was incorporated in New York and had its principal office and place of business in Rochester.
Although difference of that sort may appear to be generally incongruous, since ordinarily it would seem that susceptibility to suit in a district should be accompanied by amenability to process there, such things of course are for Congress' determination as matters of policy relating to the scope and correlation, or lack of it, of venue and service provisions. There is certainly no constitutional requirement that the two be coextensive. And to support the dictum, if it were now necessary to rule on the matter, considerations beyond the verbal difference to which the Eastman opinion pointed might be stated.
E.g., the hemispheric division of territories between the British and American interests; the exclusive licensing agreements which prevented Scophony from granting licenses to interested American companies; and the arrangements for the interchange of technical information were contractual, not charter limitations on corporate powers. The particular corporate medium used, American Scophony, and the refinements in its charter and by-laws giving General Precision and Productions an effective veto power over its operations were themselves aspects of the contractual undertakings embodied in the master agreement and the two supplemental agreements. The master agreement also designated the persons to become officers and directors of American Scophony, as representatives of both the British and the American interests.
E.g., Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634; Consolidated Textile Corp. v. Gregory, 289 U.S. 85, 53 S.Ct. 529, 77 L.Ed. 1047; People's Tobacco Co. v. American Tobacco Co., 246 U.S. 79, 38 S.Ct. 233, 62 L.Ed. 587, Ann.Cas.1918C, 537.
The catalogue emphasizes things not being done as of the dates of service, e.g., maintaining an office, warehouse or place of business; owning realty or other physical property; keeping a staf of employees; having agents 'other than counsel in this case and * * * Elcock'; keeping a telephone or a listing; making sales; conducting research; soliciting orders. Correspondingly appellee atomizes the things then being done into separate, disconnected events, viz., stock ownership (in American Scophony); contracting with American Scophony and the other corporations for transfer and licensing of patents; activities to protect Scophony's American 'interests' by resolving the impasse.
See note 22 supra. Indeed the contracts shaped the nature of the corporate distribution of powers and voting rights, so as to make them conform to the overall character and objects of the larger common enterprise. The charter and bylaw provisions of American Scophony therefore not only were governed by the contractual arrangements but carried them into execution.