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HENRY I. SIEGEL CO. v. KORATRON CO.

April 28, 1970

HENRY I. SIEGEL CO., Inc.
v.
KORATRON COMPANY, Inc.


Ryan, District Judge.


The opinion of the court was delivered by: RYAN

RYAN, District Judge.

Plaintiff SIEGEL moves for an order under Rule 65, enjoining defendant KORATRON from proceeding with arbitration in California under a demand dated September 23, 1968, and for a stay of all such proceedings until this suit and the issues pleaded in the complaint have been determined. Defendant moves for an order under 28 U.S.C. ┬ž 1404(a), transferring this action to the Northern District of California or, in the alternative, for an order staying its further prosecution pending determination of the arbitration proceeding. Both motions were argued before the Court at the same time.

 Defendant owns patents pertaining to a process for manufacturing what have come to be known in the market as "permanent press" garments. These garments are washable and retain their shape and crease without the need for ironing. Defendant's business includes the licensing of the use of its process and the trademark Koratron on garments manufactured under the process. Plaintiff, a garment manufacturer, became a licensee of Koratron on August 1, 1964, when a patent license agreement was executed by the parties.

 Defendant has 365 licensees in the United States, of which 257 are garment makers licensed under the patents. The remainder are textile mills and other nongarment makers. Defendant states that the 257 garment manufacturer licensees are located in 33 of the 50 states, and that those manufacturing garments in New York account for only 6/10 of 1% of the royalties received in 1967 from all garment manufacturers. Plaintiff asserts that, of such 365 licensees, 134 have offices in New York State and only 94 have offices west of the Mississippi, of which 26 are in California.

 The license agreement (See complaint Ex. A., par. III (4)) provides for an audit of the records of the licensees as a check on the accuracy of royalty payments. Defendant contends that in early 1966 after plaintiff refused to permit an examination of many pertinent records, it concluded that there had been default in the payment of royalties and that, while extensive correspondence was going on, this action was commenced in August 1968.

 The complaint, without putting in issue the validity of the patent, sets forth four causes of action. The first cause of action alleges that the license agreement with Koratron is a contract in restraint of trade in violation of the antitrust laws. Particularly, it alleges that the agreement violates the antitrust laws in that (1) plaintiff is required to purchase fabrics only from textile mills licensed by defendant; (2) plaintiff is required to refrain from contesting the validity of the patents; (3) plaintiff can not continue to use the patented process after termination of the license and patents; (4) plaintiff must extend its license beyond the life of one patent if it wishes to renew; (5) plaintiff is required by the license to assign to defendant any and all improvements in the licensed process developed by plaintiff's personnel; and (6) plaintiff is required to use the trademark Koratron on all garments manufactured under the patented process (Complaint, par. 14). The second cause of action alleges that Dan River Mills (Dan River) was relieved by defendant of the payment of royalties and thus can sell fabrics at a lower price, which has resulted in discrimination against plaintiff since it allegedly uses a smaller portion of the fabric manufactured by Dan River in its garments than those manufactured by other licensees (Complaint, pars. 16-22). The third cause of action alleges that Koratron has "conspired" and continues to "conspire" with Dan River to require Siegel and other garment manufacturers to purchase treated fabrics from Dan River in an attempt to monopolize the source of the unpatented product, the treated fabric (Complaint, pars. 23-27). The fourth cause of action alleges that Koratron has entered into agreements with textile mill licensees and garment manufacturer licensees other than plaintiff in which Koratron has agreed to forego the collection of all or a part of the royalties to which it would be entitled from Siegel. As a result of this alleged discriminatory discount, it is alleged that Siegel's ability to compete has been reduced (Complaint, pars. 28-32). Plaintiff seeks to recover treble damages for its alleged losses, the royalties paid by it, and judgment denying enforceability of the license agreement so long as the alleged antitrust violations continue.

 The license agreement has the following arbitration provision (Par. XIII):

 
"Any controversies or claims arising out of or in connection with this agreement, or the breach thereof, except the issue of patent infringement, shall be determined by arbitration in San Francisco, California, or such other place as the parties hereto agree upon in accordance with the Rules then obtaining of the American Arbitration Association, and shall be determined by such Association." (Complaint, Ex. A)

 In support of its motion, plaintiff argues that the charges of antitrust violations are not arbitrable. Defendant has stipulated that, if the present action is transferred to California, it will waive arbitration (Minutes of hearing, No. 1, 1968, pp. 3, 8).

 Plaintiff's corporate offices are located in New York City, but its manufacturing distribution and sales facilities are located in other states, including California, Arizona, Illinois, Kentucky, Tennessee and Mississippi. It became licensed to transact business in the State of California on March 31, 1968, and presently maintains a place of business in Los Angeles, California.

 Defendant is a California corporation with its principal place of business in San Francisco. It is not licensed to do business in any other state than California. It claims that its executive and administrative offices and its scientific, corporate and business records are located in San Francisco, California; that the vast bulk of its employees and all of its corporate officers and directors live in the San Francisco Bay area; that its research and development and all of its laboratories are in San Francisco; that all advertising and promotion are supervised from Koratron's San Francisco offices; and that the inventors of the patents are residents of the San Francisco Bay area.

 At the time of the hearing, it appeared that there were pending actions in other jurisdictions involving the same issues. There were pending in the United States District Court for the Northern District of California, sitting in San Francisco, five actions (Winter, Amory, Metro, Haggar and Levi), of which the first three were instituted prior to the commencement of this action. These actions presented substantially the same antitrust issues as the present action, although the validity of the patents was also put in issue in the California actions. By order of the California Court dated November 19, 1968, four of the actions were "consolidated for all purposes", the order being without prejudice to any motion (a) under Rule 42(b) seeking separate trial of one or more issues, or (b) under Rule 42(a) seeking consolidation of other causes, or (c) under Rule 16, seeking pretrial determination of the order of presentation of proof at trial. There were also pending similar actions in Colorado (Bagly) and Kentucky (Cowden) and motions are pending in such Courts for the transfer of the actions to California. It also appears that, after the present action was commenced, an action was instituted in this Court and a motion is pending to transfer it to California (Blue Bell, Inc. v. Koratron, Co., Inc., 68 Civ. 4184).

 We first address our attention to defendant's motion to transfer this case to the Northern District of California.

 Section 1404(a), Title 28, United States Code, provides "(a) For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other ...


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