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ZEPHYR AMERICAN CORP. v. BATES MFG. CO.

March 29, 1945

ZEPHYR AMERICAN CORPORATION
v.
BATES MFG. CO. et al.



The opinion of the court was delivered by: MEANEY

This is a declaratory judgment suit brought by Zephyr American Corporation (hereinafter called 'Zephyr'), against the Bates Manufacturing Company (hereinafter called 'Bates'), charging them with unfair competition and seeking damages therefor. This matter is before this court on remand from an opinion by the Circuit Court of Appeals. Zephyr American Corporation v. Bates Mfg. Co., 3 Cir., 128 F.2d 380.

A brief history of the case and prior proceedings will be beneficial.

 Bates is the manufacturer, among other things, of a list finding device manufactured under two patents, Drucker Patent Number 1,895,409 and Peter Patent Number 2,115,537. In the latter part of 1937 one, Pollock, conceived of what he believed to be a material improvement in the device and offered to sell his alleged improvement to Bates. After a series of interviews Bates declined Pollock's suggestions. Pollock thereupon determined to manufacture and market his own list finder, and to that end organized his own company, the Zephyr American Corporation. Zephyr thereafter entered into an agreement with the Autopoint Company, a subsidiary of the Bakelite Corporation, giving Autopoint the exclusive distributing rights of the Zephyr device.

 An August 18, 1938, Bates brought suit in Illinois against Autopoint on the Drucker-Peter patents, charging an infringement. The suit against Autopoint was settled on September 29, 1938, without an adjudication. On the same date Bates sent out notices of infringement to the trade in general, warning that the Zephyr device was a direct infringement of the Bates patents and that anyone handling such infringing articles would be liable for profits and damages.

 On October 4, 1938, Zephyr instituted this declaratory judgment proceeding charging unfair competition and seeking an injunction, an accounting and an adjudication with respect to the validity and infringement of the Peter and Drucker patents. On October 27, 1938, Bates answered and counterclaimed, charging Zephyr with infringement of the two patents by the Zephyr device known as the 'Zephyr Autodex'.

 The District Court after a trial on the merits ruled the Peter and Drucker patents valid and infringed and awarded damages to the defendant. 43 F.Supp. 893. That court found also that there had been no unfair competition. From that judgment plaintiff appealed.

 Subsequently, in October 1941, while the appeal was pending, Bates permitted a number of copies of the District Court opinion to be handed out at a convention of the National Stationers Association without further advising that an appeal had been taken.

 On May 15, 1942, the Circuit Court reversed the findings of the court below as to the validity of the Peter and Drucker patents and remanded the case for further hearings of the alleged unfair competition charges in view of the finding of invalidity of the patents.

 In addition, the Circuit Court stated that 'as the jurisdiction of the case depends upon diversity of citizenship, the questions in the federal court, whether the defendants' conduct was tortious and, if so, to what extent it is answerable therefor in damages are to be determined by local law.'

 The issue in this case is therefore confined to charges of the alleged unfair competition.

 First, as to the suit against Autopoint. That action was brought in the State of Illinois and, under the New Jersey principle with reference to conflict of laws, the right to recover for an alleged tort is governed by the law of the state in which the alleged tort is committed. Potter v. First National Bank, 107 N.J.Eq. 72, 151 A. 546.

 Under the law of Illinois, in order to establish a cause of action for unfair competition resulting from tortious conduct, it is not sufficient merely to show an intent to injure, for a person may injure another by a lawful act and intend to do so. The controlling feature is the malice which accompanies the intent to injure which is manifested by the doing of an unlawful act. As was stated by the Illinois Court in Meadowmoor Dairies v. Milk Wagon Drivers' Union, etc., 1939, 371 Ill. 377, 21 N.E.2d 308, 314: 'An intent to do a wrongful harm and injury is unlawful, and if a wrongful act is done, to the detriment of the right of another, it is malicious; and an act maliciously done, with the intent and purpose of injuring another, is not lawful competition.'

 See also Doremus v. Hennessy, 176 Ill. 608, 52 N.E. 924, 54 N.E. 524, 43 L.R.A. 797, 802, 68 Am.St.Rep. 203. The gist of the action in Illinois is, therefore, the ...


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