United States District Court, Southern District of New York
September 5, 2003
E-Z BOWZ, L.L.C., PLAINTIFF, -V.- PROFESSIONAL PRODUCT RESEARCH CO., INC., DEFENDANT PROFESSIONAL PRODUCT RESEARCH CO., INC., THIRD-PARTY PLAINTIFF, -V.- DEBORAH LEA CAVENDER, ET AL., THIRD-PARTY DEFENDANTS
The opinion of the court was delivered by: Gabriel Gorenstein, Magistrate Judge
To the Honorable Laura T. Swain
United States District Judge
Defendant Professional Product Research Co., Inc. ("PPR") moves this Court pursuant to Fed.R.Civ.P. 12(b)(7) to dismiss the complaint filed by plaintiff E-Z Bowz, LLC ("E-Z Bowz") for failure to join an indispensable party under Fed.R.Civ.P. 19. The Court has issued separate Report and Recommendations today addressing the parties' various motions for summary judgment or partial summary judgment (the "Summary Judgment R&R") and the third party defendants' motion to dismiss PPR's third party complaint for lack of personal jurisdiction. The Summary Judgment R&R contains a complete description of the allegations in this case and its procedural history. Familiarity with that Report is assumed. This Report will provide only the background necessary for an understanding of the instant motion. Page 2
As reflected in the Summary Judgment R&R, E-Z Bowz brought this action against PPR asserting patent infringement and related trade dress and unfair competition claims alleging infringement by PPR of two patents: U.S. Patent No. 5,617,979 (the "`979 Patent") and U.S. Patent Design No. 389,998 (the "`998 Patent"). Both the original and amended complaint — as well as the motion being considered in this Report and Recommendation — were filed in the United States District Court for the Eastern District of Tennessee. The action was thereafter transferred to this Court on motion by PPR.
A. The `979 and `998 Patents
During the course of the application for the `979 Patent, Deborah L. Cavender included Tina Lucille Benton Slater as a co-inventor. See Affidavit of Deborah L. Cavender, dated February 13, 1997 (reproduced in Memorandum in Support of Defendant's Motion to Dismiss Under Rule 12(b)(7) for Failure to Join an Indispensable Party Under Rule 19, F.R.C.P., filed March 21, 2000 ("PPR Mem."), Ex. C), ¶¶ 1, 6-7. When the `979 Patent was issued to Deborah L. Cavender on April 8, 1997, however, Cavender was listed as the sole inventor. See United States Patent, dated April 8, 1997 (PPR Mem., Ex. B). After suit was filed, the United States Patent and Trademark Office ("USPTO") granted Cavender's petition to add Slater as a co-inventor on the `979 Patent. See Decision on Petition under 37 C.F.R. § 1.324, undated (reproduced in E-Z Bowz' Response to PPR's Statement of Material Undisputed Facts, filed February 6, 2003, Ex. C).
On August 1, 1997, Slater signed a document in which she transferred to Cavender "her entire right, title, and interest in [the `979 Patent], including the right to sue for past, present or Page 3 future infringements thereof." See Transfer of Rights to Patent, dated August 1, 1997 ("`979 Transfer") (reproduced in Plaintiff's Memorandum in Response to Defendant's Motion to Dismiss Under Rule 12(b)(7) for Failure to Join an Indispensable Party Under Rule 19, filed April 7, 2000 ("E-Z Bowz Mem."), Ex. B). Thereafter, on January 25, 1999, Cavender assigned "all of her right, title and interest throughout the world in and to [the `979 Patent], the subject matter disclosed in the patent, and any and all prior, current, or pending rights of action therein" to E-Z Bowz. See Assignment, dated January 25, 1999 (reproduced in E-Z Bowz Mem., Ex. D).
The `998 Patent was issued on February 3, 1998 to both Cavender and Slater. See United States Patent, dated February 3, 1998 (reproduced in PPR Mem., Ex. A). On January 25, 1999, Cavender assigned "all of her right, title and interest throughout the world in and to [the `998 Patent], the subject matter disclosed in the patent, and any and all prior, current, or pending rights of action therein" to E-Z Bowz. See Assignment, dated January 25, 1999 (reproduced in E-Z Bowz Mem., Ex. J).
On October 14, 1999 — after E-Z Bowz commenced the action against PPR — Slater entered into an agreement by which she assigned to E-Z Bowz her "entire right, title and interest" in the `979 and `998 Patents and "any and all prior, current, or pending rights of action therein." See Assignment, dated October 14, 1999 ("Oct. 14 Assignment") (reproduced in E-Z Bowz Mem., Ex. H). This assignment was recorded in the USPTO on October 25, 1999. See United States Patent and Trademark Office Notice of Recordation of Assignment Document, dated January 24, 2000 (reproduced in E-Z Bowz Mem., Ex. I).
B. The Instant Motion
On March 21, 2000, PPR moved to dismiss the complaint for failure to join an Page 4 indispensable party. PPR argues that E-Z Bowz "was not `the owner' of the entire right, title and interest to the patents in suit when the Complaint was brought." PPR Mem. at 1. According to PPR, the `979 and`998 Patents were in fact owned by both E-Z Bowz and Slater at the time E-Z Bowz filed the complaint in this action. PPR Mem. at 1-2. PPR appears to concede, however, that Slater assigned her interest in both patents to E-Z Bowz after the infringement action was filed. See PPR Mem. at 2-3.
E-Z Bowz argues in response that i) it did possess the `979 and`998 Patents at the time this action was commenced and ii) even if it was not in possession of both patents at that time, Slater is not an indispensable party under Rule 19 given that she assigned her "entire right, title and interest" in both patents in October 1999. See E-Z Bowz Mem. at 1-9. Because the latter argument disposes of the motion, it is unnecessary to consider the first argument.
A. Applicable Law
"Fed.R.Civ.P. 19 sets forth a two-step test for determining whether the court must dismiss an action for failure to join an indispensable party." Viacom Int'l, Inc. v. Kearney, 212 F.3d 721, 724 (2d Cir.), cert. denied, 531 U.S. 1051 (2000). At the first step, the court must determine if the party sought to be joined "belongs in the suit, i.e., whether the party qualifies as a `necessary' party under Rule 19(a)." Id. (citing Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 124 (1968)) (emphasis in original). Rule 19(a) states in relevant part:
A person who is subject to service of process and
whose joinder will not deprive the court of
jurisdiction over the subject matter of the action
shall be joined as a party in the action if (1) in the
person's absence complete relief cannot be accorded
among those already parties, or (2) the person claims
an interest relating to the subject of the action and
is so situated that the disposition of the action in
the person's absence may (i) as a practical matter
impair or impede the person's ability to protect that
interest or (ii) leave any of the persons already
parties subject to a substantial risk of incurring
double, multiple, or otherwise inconsistent
obligations by reason of the claimed interest.
If the court makes a threshold determination that a party is necessary under Rule 19(a), and joinder is not feasible, the court must proceed to the second step and determine whether the party is "indispensable" under Rule 19(b). See Viacom, 212 F.3d at 725.
Rule 19(b) provides that:
If a person as described in subdivision (a)(1)-(2)
hereof cannot be made a party, the court shall
determine whether in equity and good conscience the
action should proceed among the parties before it, or
should be dismissed, the absent person being thus
regarded as indispensable. The factors to be
considered by the court include: first, to what extent
a judgment rendered in the person's absence might be
prejudicial to the person or those already parties;
second, the extent to which, by protective provisions
in the judgment, by the shaping of relief, or other
measures, the prejudice can be lessened or avoided;
third, whether a judgment rendered in the person's
absence will be adequate; fourth, whether the
plaintiff will have an adequate remedy if the action
is dismissed for nonjoinder.
If, however, the party does not "qualify as necessary under Rule 19(a), then the court need not decide whether [the party's] absence warrants dismissal under Rule 19(b)." Viacom, 212 F.3d at 724 (citing Associated Dry Goods Corp. v. Towers Fin. Corp., 920 F.2d 1121
, 1123 (2d Cir. 1990)).
PPR argues that Slater is "necessary" under Rule 19(a)(2)(ii) because the filing of this suit "by less than all the owners of the patent could subject defendant to multiple, and perhaps inconsistent, liability for alleged infringement by each of the patent owners, and deprives the court of any jurisdiction over the action." PPR Mem. at 3. Page 6
B. Whether Slater is an Indispensable Party
"Traditionally, co-owners of a patent were considered indispensable parties in a patent infringement action." See Michaels of Oregon Co. v. Mil-Tech, Inc., 1995 WL 852122, at *1 (D. Or. Oct. 17, 1995) (citing Waterman v. Mackenzie, 138 U.S. 252, 255 (1891)). The logic of this rule was that because "all co-owners have standing to sue for infringement, if all the co-owners are not joined in an infringement suit, there may be a risk that the defendant will be subject to multiple suits." Int'l Bus. Mach. Corp. v. Conner Peripherals, Inc., 1994 WL 409493, at *3 (N.D. Cal. Jan. 28, 1994) (citation omitted); accord Michaels of Oregon, 1995 WL 852122, at *1 (citations omitted).
Since the introduction of Fed R. Civ. P. 19 and the 1966 amendments to the rule, however, "courts are less concerned with abstract characterizations of the parties and more concerned with whether the rights of the parties can be fairly adjudicated absent joinder of a patent co-owner." Michaels of Oregon, 1995 WL 852122, at *2 (citations omitted); accord Parkson Corp. v. Fruit of the Loom, Inc., 1992 WL 541570, at *3 (E.D. Ark. 1992) ("the adoption of the 1966 amendment to Rule 19 of the Federal Rules of Civil Procedure makes clear that patent owners are not per se indispensable parties in infringement actions") (emphasis in original); Howes v. Med. Components, Inc., 698 F. Supp. 574, 576 (E.D. Pa. 1988) ("the adoption of the 1966 amendments to Rule 19 `makes inappropriate any contention that patent co-owners are per se indispensable in infringement suits'") (quoting Catanzaro v. Int'l Tel. and Tel. Corp., 378 F. Supp. 203, 205 (D. Del. 1974)) (citations omitted) (emphasis in original). Page 7
The Supreme Court in Provident Tradesmens Bank & Trust Co., observed:
The decision whether to dismiss (i.e., the decision
whether the person missing is "indispensable") must be
based on factors varying with the different cases,
some such factors being substantive, some procedural,
some compelling by themselves, and some subject to
balancing against opposing interests. Rule 19 does not
prevent the assertion of compelling substantive
interests; it merely commands the courts to examine
each controversy to make certain that the interests
really exist. To say that a court "must" dismiss in
the absence of an indispensable party and that it
"cannot proceed" without him puts the matter the wrong
way around: a court does not know whether a particular
person is "indispensable" until it ha[s] examined the
situation to determine whether it can proceed without
390 U.S. at 118-19. The modern approach thus "`requires courts to face squarely the pragmatic substantive and procedural considerations which properly should be controlling in determining whether a party is needed for the just adjudication of a case.'" Howes, 698 F. Supp. at 577 (quoting Tycom Corp. v. Redactron Corp., 380 F. Supp. 1183, 1186 (D. Del. 1974)).
PPR argues that "[i]t is hornbook law that all of the owners of the entire right, title and interest in the patent(s) must be present before the court as plaintiffs or the court lacks jurisdiction and the case must be dismissed." PPR Mem. at 3 (citing Waterman, 138 U.S. at 252; Moore v. Marsh, 74 U.S. 515 (1869); Switzer Bros., Inc. v. Byrne, 242 F.2d 909 (6th Cir. 1957)). As noted above, however, Slater is no longer an "owner" as she assigned her interest in the `979 and `998 Patents to E-Z Bowz after commencement of the present action. See Oct. 14 Assignment; cf. Int'l Bus. Mach. Corp., 1994 WL 409493, at *3, *6 ("Co-owners may avoid the inconvenience or undesirability of the joinder rule by structuring their interests so that one party is no longer in law an `owner.'") (citations omitted).
PPR nonetheless contends that "[t]he fact that [Slater] . . . quitclaims, or conveys by assignment, her interest to the patents-in-suit after filing of the Complaint cannot give the court Page 8 jurisdiction over the action as jurisdiction depends upon the state of things existing at the time suit was brought." PPR Mem. at 3 (emphasis in original). PPR does not, however, articulate any reason why the status of the parties at the time of the filing of suit should be of any significance for purposes of the Rule 19 analysis.
Here, Slater's absence will not result in a situation where "complete relief cannot be accorded among those already parties." Fed.R.Civ.P. 19. Nor does Slater any longer "claim an interest relating to the subject of the action." Id. The remaining requirements of Rule 19(a) also are not met. The litigation will not "impair or impede" Slater's ability to protect her interests since she no longer has any interest in this litigation. Finally, PPR will in no way be "subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations" inasmuch as Slater no longer has an interest or any right to sue for infringement. See Int'l Bus. Mach. Corp., 1994 WL 409493, at *6-*7 (rejecting argument that party moving to dismiss for failure to join indispensable party was subject to multiple or inconsistent obligations where agreement provided that the party sought to be joined did not hold the right to sue infringers). Nothing in the language of Rule 19 suggests that Slater's subsequent assignment requires that she be dragooned into being part of a litigation in which she has disclaimed all interest.
An analogous argument was advanced and rejected in Procter & Gamble Co. v. Kimberly-Clark Corp., 684 F. Supp. 1403 (N.D. Tex. 1987). The patent at issue in that case was held by Raychem, which granted plaintiff Procter & Gamble an exclusive license to the patent. Id. at 1403-04. Procter & Gamble then filed suit against defendant Kimberly-Clark for patent infringement, after which the defendant counterclaimed against Raychem asserting that it should be a party. Id. Sometime after the complaint was filed, Raychem assigned all its rights under the Page 9 patent to Proctor & Gamble. Id. When Raychem moved to dismiss, the court rejected Kimberly-Clark's argument that the court "should consider the facts as they existed at the time of filing suit in determining whether Raychem was a proper party." Id. 1406 (emphasis in original). The court held that "even if Raychem owned the . . . patent on the day suit was filed, dismissal was proper once the patent had been assigned." Id. at 1406-07 (citing Robert L. Ferman & Co. v. Gen. Magnaplate Corp., 33 F.R.D. 326, 329 (D.N.J. 1963) and Irving Air Chute Co. v. Switlik Parachute & Equip. Co., 26 F. Supp. 329, 330 (D.N.J. 1939)). The court concluded that
[a] party which assigns all of its rights and
interests under a patent should not be compelled to
litigate an infringement action merely because it was
the patent owner on the day suit was filed and for a
few days thereafter. A party which divests itself of
all of its interest in a patent does not have a
sufficient stake in the outcome of the controversy to
require that it remain a party. Any other result would
exalt form over substance.
Id. at 1407. See also Rawlings v. Nat'l Molasses Co., 394 F.2d 645, 647 (9th Cir. 1968) (rejecting argument that assignment of patent rights after litigation commenced made assignor an indispensable party because assignor's absence "does not leave the defendants subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations"); Valmet Paper Mach., Inc. v. Beloit Corp., 868 F. Supp. 1085, 1089 (W.D. Wis. 1994) (denying motion to dismiss for lack of standing where assignment conveying all rights in patent to plaintiff was executed after action was filed; to hold otherwise "would result in needless delay and needless expenditure of the parties' and the court's resources" for the plaintiff would "simply . . . amend the complaint to add the assignor and then dismiss it as an unnecessary party, or simply . . . reinstate the lawsuit"). Page 10
While PPR cites one case that supports its position, Switzer Bros., Inc. v. Byrne, 242 F.2d 909 (6th Cir. 1957), the "precedential value [of Switzer] must be doubted in light of more recent case authority holding that a patent's co-owner may not be an indispensable party to an infringement action if the shaping of relief can avoid any possible prejudice." Proctor & Gamble Co., 684 F. Supp. at 1406 (citing Windsurfing Int'l, Inc. v. Ostermann, 100 F.R.D. 82, 83-84 (S.D.N.Y. 1983)). See generally Michaels of Oregon, 1995 WL 852122, at *2 (recent courts are "more concerned with whether the rights of the parties can be fairly adjudicated absent joinder of a patent co-owner") (citations omitted).
For the foregoing reasons, PPR's motion to dismiss for failure to join an indispenable party should be denied.
PROCEDURE FOR FILING OBJECTIONS TO THIS
REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties have ten (10) days from service of this Report to file any objections. See also Fed.R.Civ.P. 6(a), (e). Such objections (and any responses to objections) shall be filed with the Clerk of the Court, with copies sent to the Honorable Laura T. Swain, 40 Centre Street, New York, New York 10007, and to the undersigned at the same address. Any request for an extension of time to file objections must be directed to Judge Swain. If a party fails to file timely objections, that party will not be permitted to raise any objections to this Report and Recommendation on appeal. See Thomas v. Arn, 474 U.S. 140
(1985). Page 1
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