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Guan Gao Co., Ltd. v. Acco Brands Corp.

March 13, 2007

GUAN GAO COMPANY, LTD. D/B/A POLOX COMPANY, LTD. AND NOBLE SECURITY, INC., PLAINTIFFS,
v.
ACCO BRANDS CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Jed S. Rakoff, U.S.D.J.

MEMORANDUM

By motion dated December 15, 2006, defendant moved, pursuant to the first-filed rule and 28 U.S.C. § 1404(a), to transfer this action to the United States District Court for the Northern District of Illinois, where a case involving related parties, facts, and claims is proceeding before the Honorable James B. Zagel, U.S.D.J. By Order dated January 19, 2007, the Court granted defendant's motion and directed the Clerk to take the necessary steps to effectuate the transfer. This Memorandum gives the reasons for that ruling.

By way of background, plaintiffs Polox Co. Ltd. ("Polox") and Noble Security, Inc. ("NSI") filed the instant action against defendant Acco Brands Corp. ("Acco") on October 6, 2006 seeking, inter alia, a declaratory judgment that two of Acco's patents (the "'403" and "'479" patents) are invalid. See Complaint ¶ 49. Acco (based in Illinois) and NSI (based in Texas) sell cylinder locks used in computer security, see Complaint ¶¶ 3-4, and Polox (based in Taiwan) is a manufacturer of computer locks that supplies NSI, see Complaint ¶ 2; see also Defendant's Memorandum In Support Of Its Motion to Transfer ("Def. Mem.") Ex. K (Declaration of Meir Avganim dated September 13, 2005) ¶ 5.

These parties, or related entities, have been involved in litigation for some six years.

Initially, in 2000, Acco brought in the Northern District of California an action against Noble Security Systems, Inc. ("NSSI"), a California corporation that also markets cylinder locks. The action alleged infringement of two other patents, the "'989" and the "'557" patents. In 2001, Acco and NSSI entered a settlement agreement and the California action was dismissed. Def. Mem. Ex. E ("California Settlement Agreement"). NSSI admitted in that settlement agreement that certain of its computer locks infringed Acco's patents, agreed to pay Acco a lump-sum payment, and agreed to refrain from making, using, or selling the infringing products. Id. The agreement covered NSSI's "officers, agents, servants, employees, attorneys and those persons in active concert or participation with them." Id. at 2.

Next, in 2003, Acco filed suit against NSSI and two related entities --- Office Security Solutions, Inc. ("OSSI") and SecuComputer, Inc. ("SecuComputer"). This suit was filed in the Northern District of Illinois and was assigned to Judge Zagel. It alleged infringement of the two patents involved in the California action (the '989 and '557 patents) and breach of the California Settlement Agreement. Def. Mem. Ex. F ("Illinois Complaint") ¶¶ 22-37. Judge Zagel initially entered default judgments against these defendants, Def. Mem. Ex. G, but thereafter granted a motion by NSSI and OSSI to vacate the default judgments against them, and the action proceeded. Def. Mem. Exs. H, I.*fn1

Thereafter, on October 6, 2006, plaintiffs filed the Complaint in the instant action. By motion dated December 15, 2006, defendant moved this Court to transfer this case to the Northern District of Illinois on the ground that both the first-filed rule and the relevant factors under 28 U.S.C. § 1404(a) favor such a transfer. This Memorandum will address each of these arguments in turn.

Under the first-filed rule, when two district courts concurrently have before them actions involving the same parties and issues, there is "a strong presumption in favor of the forum of the first-filed suit" unless either the balance of convenience or any other "special circumstances" clearly favor the latter-filed action. 800-Flowers, Inc. v. Intercontinental Florist, Inc., 860 F. Supp. 128, 131-32 (S.D.N.Y. 1994); City of New York v. Exxon Corp., 932 F.2d 1020, 1025 (2d Cir. 1991). "To overcome the preference for the forum of the first-filed suit, a sound reason must exist that would make it unjust or inefficient to continue the first-filed action." Findwhat.com v. Overture Servs., Inc., 2003 WL 402649, at *4 (S.D.N.Y. 2003).

Plaintiffs offer two primary reasons to depart from the first-filed rule:

First, plaintiffs argue that they (NSI and Polox) are unrelated to the parties in the Illinois action (NSSI and OSSI). Pl. Opp'n Mem. at 8. The mere fact that the parties in the two lawsuits are not identical is not dispositive; the instant action and the Illinois action may be considered duplicative as long as the parties involved in the two suits "represent the same interests." The Haytian Republic, 154 U.S. 118, 124 (1894); see, e.g., Howard v. Klynveld Peat Marwick Goerdeler, 977 F. Supp. 654, 664 (S.D.N.Y. 1997) ("if the parties 'represent the same interests' the court may determine the second action to be duplicative") (quoting The Haytian Republic, 154 U.S. at 124). Plaintiffs argue, however, that the parties involved in the two actions do not represent the same interests. That argument, however, does not withstand scrutiny.

NSI, NSSI, and OSSI are all owned by members of the Avganim family and are all effectively controlled by an individual named Meir Avganim. In a declaration dated November 22, 2005, Meir Avganim stated that his son owns NSSI, Def. Mem. Ex. J ¶ 1, that his cousin owns OSSI, id., that his sister-in-law owns NSI, id., and that "I am and have at all relevant times been the person in overall charge of the Noble companies' business worldwide," id. ¶ 11. Further, in a declaration dated September 13, 2005, Avganim stated that the other plaintiff here, Polox, is the supplier of the Noble entities, which "manufacture[s] parts to my specifications." Def. Mem. Ex. K ¶ 5.

Further still, the 2001 settlement agreement at issue in the Illinois action, which is between NSSI (a defendant in Illinois) and Acco (the defendant here and the plaintiff in Illinois), explicitly binds "those persons in active concert or participation with" NSSI, California Settlement Agreement at 2, and this broad language doubtless includes NSI and Polox, the plaintiffs here. Thus, the interests of Polox and NSI here and NSSI and OSSI in Illinois are effectively aligned.*fn2

Second, plaintiffs argue that the issues in the instant action and the Illinois action are different because the Illinois action involves that '989 and the '557 patents, issued in 1996 and 1999, respectively, and the instant case involves the '403 and '479 patents, which were issued in 2006, and therefore did not even exist when Acco originally filed the Illinois action in 2003. Pl. Opp'n Mem. at 9; see also transcript, 1/16/07, at 3-5. But plaintiffs admit that all four of these patents, which issued between 1994 and 2006, are based on the same parent patent applications filed in 1992 and 1993, see transcript, 1/16/07, at 3-4; Complaint ¶ 15 (noting that Acco "has since parlayed th[e] original patent application into numerous issued patents"); Pl. Opp'n Mem. at 2. In such circumstances, the fundamental issues are sufficiently identical to warrant transfer. See Brunswick Corp. v. Precor Inc., 2000 WL 1876477, at *3 (D. Del. 2000) (granting transfer where "there has already been litigation [in the transferee court] on the '207 patent, a parent patent of the one at issue here").

Accordingly, transfer is warranted under the first-filed rule. Independently, though for partly related reasons, transfer is also ...


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