Opinion ID: 1475532
Heading Depth: 1
Heading Rank: 5

Heading: Counterclaim of Alleged Unfair Competition.

Text: The right to file a counterclaim in this case arises under Equity Rule 30, par. 2, 28 U.S.C.A. following section 723, and constitutes a cause of action which might be the subject of an independent suit in equity. See Cooling Tower Co. v. C. F. Braun & Co., 9 Cir., 1 F.2d 178; Texas Co. v. Borne Scrymser Co., 4 Cir., 68 F.2d 104. In such a case, jurisdiction must be supported upon diversity of citizenship and an amount in controversy exceeding $3,000, exclusive of interest and costs. Although these jurisdictional facts were alleged, there is no finding that the value of the matter in controversy exceeded that amount. In the absence of both a finding of jurisdictional facts and of evidence to support such a finding, a judgment will be reversed and ordered dismissed. Electro Therapy Products Corporation v. Strong, 9 Cir., 84 F.2d 766; McNutt v. General Motors Acceptance Corp., 298 U. S. 178, 56 S.Ct. 780, 80 L.Ed. 1135. If there is no evidence to support a finding of jurisdictional facts the case must be dismissed. KVOS, Inc., v. Associated Press, 299 U.S. 269, 277, 57 S.Ct. 197, 200, 81 L.Ed. 183. In the case at bar, however, there is evidence to support a finding that the amount involved exceeded $3,000, exclusive of interest and costs. The right appellee sought to have protected was the right to conduct its business free from unlawful interference by appellant. See KVOS, Inc., v. Associated Press, supra. The record shows that the investment in appellee's plant alone exceeded $250,000. There was a showing of loss of customers claimed to be due to the alleged unlawful practices whose purchases were substantial, far exceeding the jurisdictional amount. Appellant contends that the jurisdiction is not to be tested by the value of the business involved, citing McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 56 S.Ct. 780, 80 L.Ed. 1135, supra; see, also, KVOS, Inc., v. Associated Press, 299 U.S. 269, 57 S.Ct. 197, 81 L.Ed. 183, supra. In the case of McNutt v. General Motors Acceptance Corp., supra, which involved a suit to enjoin as unconstitutional a state statute requiring plaintiff to obtain a license for its business and subjecting the business to regulation, it was held that inasmuch as the statute did not attempt to prevent the plaintiff from conducting its business and there was no showing that it could not obtain a license for its business and proceed with its operation, the value of the right to be free from regulation was the test of jurisdictional amount, not the value of the business. In the case at bar, the effect of the acts of appellant, done and threatened, which are claimed to constitute unfair trade practice, would be to destroy appellee's entire business and good will, and the amount of such damage is a proper test of jurisdiction. KVOS, Inc., v. Associated Press, supra. The evidence was sufficient to show that the threatened damage to appellant's business satisfied the jurisdictional requirement as to amount involved. The evidence of the claimed unfair competition, in substance, amounts to a showing that appellant sent letters (in the years 1931 and 1932), after this suit was begun, to appellee's customers calling attention to the fact that appellant had brought suit against the Pacatome Company [3] for infringement of its patents Nos. 1,632,458 and 1,477,493, which are claimed to cover appellant's straight milled diatomaceous earth, and its diatomaceous earth calcined without the added flux and the method of producing, and also calling attention to the filing of the suit at bar. Other evidence related to letters of appellant to its sales representatives instructing them to advise the customers of appellee to obtain a guarantee or bond from appellee to cover loss due to infringement suits that might be instituted against them. It also appears from the record that representatives of appellant made similar statements and that appellee's customers were also told that, financially, appellee could not weather the storm of pending suits. These statements were made in the years 1931 and 1932. The letters were sent and the representations were made to customers of appellee who used its diatomaceous earth filteraid products prepared without the use of a flux, and, consequently, not covered by the patent in suit. Bad faith is an essential element in the charge of unfair competition where such charge is based upon claims of patent infringement and threats to take action based upon such infringement. Emack v. Kane, C.C., 34 F. 46; Alliance Securities Co. v. De Vilbiss Mfg. Co., 6 Cir., 41 F.2d 668; Oil Conserv. Eng. Co. v. Brooks Eng. Co., 6 Cir., 52 F.2d 783, 785; American Ball Co. v. Federal Cartridge Corp., 8 Cir., 70 F.2d 579, 98 A.L.R. 665; Art Metal Works v. Abraham & Straus, 2 Cir., 70 F.2d 641. There is nothing wrong in notifying infringers that they are guilty of infringement and are liable therefor. Indeed, such notice is required in some fashion before suit for infringement can be maintained. 35 U.S.C.A. § 49; American Ball Co. v. Federal Cartridge Corp., supra, 70 F.2d 579, at page 581, 98 A.L.R. 665. Where a holder of a patent attempts to destroy a competitor by threats to bring infringement suits against its customers and such threats are made without the intention of bringing such suits, and where there is an opportunity to bring such suits without any attempt to evade the issue on the part of the alleged competitor, it has been held that a long delay in bringing the suit is such evidence of bad faith in the campaign of intimidation as justifies a finding of malice and an award of damages for past misconduct and an injunction as to future threats and intimidation. Art Metal Works v. Abraham & Straus, supra. In the case at bar the appellant confines its suit for infringement to one of the three patents owned by it which cover its diatomaceous earth products. So far as the claims of unfair competition are predicated upon the letters giving notice of the filing of the suit at bar and upon the efforts of the appellant to retain its monopoly of the sale of diatomaceous earth products presumably covered by the patent in suit (filteraid powder of diatomaceous earth calcined with added flux), we think that there was no evidence of bad faith for the infringement suit at bar was brought before the notices were given. But in regard to the conduct of appellant toward customers of appellee who purchased diatomaceous earth products not covered by the patent in suit (filteraid powders of natural milled diatomaceous earth and diatomaceous earth calcined without the added flux), a different situation is presented. Appellee has had no opportunity to challenge the claims of the appellant and show that its natural and calcined diatomaceous earth products do not infringe the appellant's patents, or that such patents are invalid. Appellant made no attempt to litigate the validity of those two patents (Nos. 1,632,458, 1,477,394) or its claim of infringement in the pending suit as it might have done by answer to the counterclaim. See Federal Elec. Co. v. Flexlume Corp., D. C., 9 F.2d 647. We have thus a situation where the appellant was litigating the validity of one patent, declining to give the appellee an opportunity to litigate two closely related patents, while at the same time attempting to destroy the appellee's business in products covered by the other two patents as well as in the product and process involved in the suit at bar. We take judicial notice of the fact that at the time this patent suit was pending it took about two years to get such an action to trial in the United States District Court for the Southern District of California by reason of the crowded condition of the calendar. In the case at bar the action was brought March 17, 1931, by the filing of the bill of complaint and was brought to trial in April, 1933. The trial was concluded in May, 1933, but the case was not decided until May, 1935, when the trial judge handed down his memorandum opinion which was followed by findings of fact and conclusions of law, and decree issued October 31, 1935. Appellant states in its brief that suit has been brought by it against the Pacatome Company (the suit referred to in the form letter sent the trade by appellant through Johns Manville Company) on the patents owned by it which are claimed to cover appellee's natural milled diatomaceous earth and straight calcined diatomaceous earth products. Appellant contends that pending the determination of the Pacatome case it has withheld filing of a corresponding suit against appellee to avoid a needless multiplicity of litigation and that this is entirely proper. The cases cited by appellant on this point (McWilliams Mfg. Co. v. Blundell, C.C., 11 F. 419, 422; Timolat et al. v. Franklin Boiler Works Co., 2 Cir., 122 F. 69) are concerned with the question of laches and are not pertinent in the case at bar. It is true that appellant need not sue all alleged infringers at one time. But where, as here, a campaign is conducted which is designed to destroy a competitor's business and where ample opportunity is presented to litigate the patents involved, which is not availed of, the inference of bad faith is inescapable. Appellee has no opportunity to defend the Pacatome suit, would not be bound by a judgment there rendered, and the question of infringement of the patents involved therein has no bearing on the question of infringement of the same patents by appellee. We conclude that the evidence sustains the charge of malice in regard to appellant's conduct regarding customers of appellee not using diatomaceous earth products covered by the patent in suit, that an accounting was properly ordered therefor, and that an injunction should be issued against such conduct until such time as the appellant brings suit for infringement of the two patents against the appellee. In regard to the conduct of appellant toward customers of appellee who were using products presumably covered by the patent in suit we hold that there was no malice and that there should be no accounting therefor. The decree of the District Court holding claims 1, 2, 11, 12, 13, 14, 18, and 21 of the patent in suit invalid, and 5, 6, and 9 valid and not infringed, is affirmed. That part of the decree ordering an injunction and accounting against appellant is directed to be modified to cover appellee's two other filteraid products only, in accordance with this opinion.