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OSTOW & JACOBS, INC. v. MORGAN-JONES

November 4, 1959

OSTOW & JACOBS, INC., Plaintiff,
v.
MORGAN-JONES, INC., and Aileen Mills Co., Inc., Defendants



The opinion of the court was delivered by: BRYAN

Plaintiff is suing for judgment declaring invalid, a design patent covering a tufted bedspread, to enjoin defendants from threatening the trade with suits for infringement and for related relief. Jurisdiction is alleged to be based on questions arising under the patent and unfair competition statutes of the United States. *fn1"

Defendant Aileen Mills Co., Inc. moves to quash service of process and to dismiss for lack of jurisdiction on the ground that it is not subject to service within this district. It also moves to dismiss for lack of venue.

 Ostow & Jacobs, Inc., the plaintiff, is a New York corporation with its principal place of business in New York. Aileen Mills, the moving defendant, is a Delaware corporation engaged in manufacturing and selling textile yarns and fabrics, with its principal place of business in Briscoe, North Carolina. The other defendant Morgan-Jones, is a New York corporation engaged in the sale of textile fabrics, with its principal place of business in New York and with offices in other cities.

 The action is brought to declare invalid a design patent issued on October 8, 1957, covering the design of a tufted bedspread known as 'Moonbeam', the record title of which is in the name of Aileen Mills.

 It is alleged by plaintiff that defendants have communicated with the trade orally and in writing, claiming, in substance, that the bedspreads manufactured by the plaintiff infringe the design patent on the 'Moonbeam' bedspread, and threatening suits for such infringement.

 Service on Aileen was made by serving Morgan-Jones in New York. Morgan-Jones was Aileen's only selling agent. Aileen contends that the activities carried on by Morgan-Jones on its behalf in New York are not sufficient to make it subject to the jurisdiction of this court and that it cannot properly be served here.

 Substantially all of Aileen's production is marketed and sold by Morgan-Jones which acts as Aileen's exclusive selling agent on a commission basis. It also sells for an undisclosed number of other mills. Morgan-Jones is the sole sales representative which Aileen employs, and with the exception of some few sales of yarn within North Carolina, Aileen carries on no selling activities of its own. Morgan-Jones also designs and develops patterns for the products which Aileen manufactures, and extensively advertises and promotes the bedspreads which are Aileen's principal product and which are involved in this litigation.

 The printed form of order or sales blank regularly used by Morgan-Jones in the sale of the Aileen fabrics is headed 'Morgan-Jones, Inc., Fine Fabrics since 1872, 402 Fifth Avenue, New York 18, N.Y.', and bears the legend 'Subject to mill acceptance'. Aileen's name is not printed thereon. Aileen concedes that it does not participate in 'the actual sales solicitation, consummation, or perfection of orders solicited or negotiated' by Morgan-Jones. However, it is claimed that orders obtained by Morgan-Jones are subject to acceptance by Aileen in North Carolina. The goods are delivered by Aileen to the carrier there and invoices are mailed from there to purchasers.

 Aileen is not licensed to do business in New York. It has no telephone or building directory listing here, nor does it maintain a bank account or stock of merchandise here. However, customers make payment for the goods purchased to J. P. McGuire, Inc. in New York who are Aileen's factors.

 Morgan-Jones, from its principal offices in New York, circulated the material to the trade claiming infringement of the Aileen patent which plaintiff seeks to have declared invalid. A letter was sent by Morgan-Jones on its letterhead, and signed by its president, to all its salesmen, to distributors and to retail bedspread buyers. The letter calls attention to a suit for patent infringement and unfair competition brought by these defendants against Ojay Mills, an affiliate of the plaintiff in this action, in the United States District Court for the Northern District of Georgia, in order to protect the 'Moonbeam' bedspread patent, and encloses a clipping from the Daily News Record on this subject. In the letter Morgan-Jones refers to the considerable sum of money it spent in promoting and advertising 'our outstanding bedspread, Moonbeam', and refers to 'our designs and patents' and to 'any other Morgan-Jones styles that are copied'.

 Morgan-Jones and Aileen Mills are closely related corporations. Aileen is a wholly owned subsidiary of Scotland Mills, which also owns 50% of Morgan-Jones. Most of the other shares of Morgan-Jones are owned by a corporation known as Morgan Mills. Edwin Morgan is an officer, director and shareholder in all four corporations. Halbert Jones is an officer, director and shareholder in three of the four corporations, and vice president of Morgan-Jones and treasurer of Aileen. There are other interlocking officers and directors.

 I have recently had occasion to discuss the standards which govern in personam jurisdiction over foreign corporations in original suits in the federal courts based on diversity in Clifton Products, Inc. v. American Universal Ins. Co., D.C.S.D.N.Y., 169 F.Supp. 842. Certainly no narrower standards apply in original suits where jurisdiction is based on questions arising under federal law. It is unnecessary to repeat the discussion in the Clifton Products case here or to refer at any length to the cases which were cited.

 As I pointed out there, there is no general statutory guide to which the federal courts may look to determine whether a foreign corporation is amenable to process within the state in which the court is situated. The standards which have been applied are largely the product of decision. While in actions removed from a state court to the federal court state law is applied in determining the question, different standards are applicable in an original action in the federal court.

 There is a wide divergence of judicial opinion as to whether in an original action in the federal court based on diversity of citizenship federal law or state law is to be applied. In this circuit, however, it has been consistently held, with one exception, that federal law is determinative of whether a foreign corporation is amenable to service of process in a diversity action commenced in the federal courts. The most recent comprehensive discussion is in Nash-Ringel, Inc. v. Amana Refrigeration, Inc., D.C.S.D.N.Y., 172 F.Supp. 524. The contrary view was ...


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