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DILLARD DEPT. STORES v. APPLICATION ART LABS. CO.

January 14, 1992

DILLARD DEPARTMENT STORES, INC., Plaintiff, against APPLICATION ART LABORATORIES CO. and RANDOLPH RAND CORP., Defendants.

BRODERICK


The opinion of the court was delivered by: VINCENT L. BRODERICK

VINCENT L. BRODERICK, U.S.D.J.

 Plaintiff Dillard Department Stores Inc. ("Dillard"), an owner and operator of department stores in the United States, brought this action for a declaratory judgment of patent invalidity, unenforceability and non-infringement with respect to United States Patent Number 4,021,891 (the "891 Patent") against Application Art Laboratories Company ("Application Art") and Randolph-Rand Corporation ("Randolph-Rand"). The 891 Patent concerns a magnetic locking device which is utilized on women's handbags and similar items.

 Application Art, a Japanese Corporation having its principal place of business in Japan, owns the 891 Patent. Randolph-Rand, a Delaware corporation with its only place of business in New York, is the exclusive licensee and distributor of the 891 Patent in the United States.

 In 1986 Randolph-Rand brought suit against Dillard in New York State court, alleging that the company had breached the terms of the Settlement Agreement. This action was settled by Dillard's agreement to pay $ 5000 for 20,000 additional 891 Patent labels. During the same year, several claims with respect to the 891 Patent were rejected and amendments to the claims were made in reexamination proceedings before the United States Patent Office. Randolph-Rand assisted Application Art in its work on these reexamination proceedings.

 During 1987 and 1988, Dillard purchased additional 891 patent labels from Randolph-Rand, and also purchased magnetic snaps directly from Application Art. In 1988, Randolph-Rand again brought suit against Dillard in New York State court alleging breach of the Settlement Agreement. This action was settled by Dillard's payment of $ 4500 in "back fees" for 891 Patent labels. During 1989 and 1990 Dillard purchased additional labels from Randolph-Rand. Then on May 29, 1990 Randolph-Rand asserted in a letter to Dillard that Dillard was again infringing the 891 Patent, and it demanded an accounting by Dillard of all sales of infringing products since 1986.

 Dillard asserts that at that point it decided to investigate, for the first time, the validity of the 891 Patent; it discovered a number of reasons why the 891 Patent might not be valid.

 On September 17, 1990 Randolph-Rand again sued Dillard in New York State court for infringing the 891 Patent. Dillard then commenced a federal court action in Arkansas against Randolph-Rand and Application Art seeking an adjudication of the validity of the 891 Patent: it sought and obtained a stay of the New York State case pending a resolution of the Arkansas action. The Arkansas action was, however, dismissed for lack of personal jurisdiction. Dillard then commenced this action. Randolph-Rand's state court action has been stayed by the state court at Dillard's request pending the outcome of this action.

 Randolph-Rand has moved to dismiss Dillard's complaint pursuant to Federal Rules of Civil Procedure 12 and 19 on the grounds that this court does not have personal jurisdiction over defendant Application Art, and that Application Art is a necessary party to this action. *fn1" Alternatively, Randolph-Rand argues that Dillard is estopped from contesting the validity of the 891 Patent by virtue of what Randolph-Rand characterizes as Dillard's previous acknowledgment of the patent's validity through the Settlement Agreement and Dillard's subsequent actions. For the reasons which follow, defendants' motion to dismiss is denied.

 II

 Plaintiff's complaint appears to allege that jurisdiction is proper under both CPLR § 301 and 302, not because of the direct actions of Application Art but because Randolph-Rand has essentially acted as Application Art's agent in New York. Cases interpreting the showing necessary in order to find that personal jurisdiction under New York law is proper under an agency theory have traditionally adopted a number of varying tests. See N.Y. Civ. Prac. Law § 302 Practice Commentaries, C302.3. In 1988, however, the New York Court of Appeals held that in order to establish an agency relationship for purposes of New York's longarm statute, "Plaintiff need not establish a formal agency relationship" between a party subject to jurisdiction in New York and a foreign defendant: the requisites of long-arm jurisdiction over the foreign defendant under an agency theory will be satisfied where the New York resident engages in purposeful activities in the state in relation to the transaction which is the subject of suit, if such activities are for the benefit of, and with the knowledge and consent of, the foreign defendant, and if that foreign defendant exercises some degree of control over the activities of the New York party. Kreutter v. McFadden Oil Corp. 71 N.Y.2d 460, 527 N.Y.S. 2d 195, 199, 522 N.E.2d 40 (1988) See also Cutco Industries v. Naughton 806 F.2d 361, 366 (2d Cir. 1986). (In considering agency questions under the long-arm statute, "courts have focused on the realities of the relationship in question rather than the formalities of agency law.")

 The record which has been developed thus far indicates that Randolph-Rand from its base in New York has over a period of years performed various deliberate actions for Application Art which, when considered together, are sufficient to indicate that Randolph-Rand has for all practical purposes acted as Application Art's agent here. It is not disputed that Randolph-Rand is the sole licensee and exclusive distributor of products covered by the 891 Patent in the United States. Randolph-Rand's actions on behalf of Application Art, however, have extended beyond exclusive licensing and distribution. Randolph-Rand has asserted in written communications to Dillard that it is "the party authorized to resolve matters relating to the Patent's infringement in the United States" and Randolph-Rand, rather than Application Art, appears to be the party which has taken the leading role in the extensive legal battles in this country over the 891 Patent against Dillard and other parties. Indeed, Randolph-Rand has apparently ...


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