AMERICAN FORESIGHT OF PHILA., INC. v. FINE ARTS STERLING SILVER

HIGGINBOTHAM, District Judge.

OPINION

The instant matter is before this Court on a motion by the defendants to dismiss three counts of the plaintiffs' complaint for lack of subject matter jurisdiction. The plaintiffs have brought suit alleging copyright infringement and have joined with their complaint three counts alleging unfair competition. Plaintiffs rely on 28 U.S.C. § 1338(b) to sustain the unfair competition claims.

The defendants' motion poses the question whether the federal and non-federal claims are "related" within the meaning of § 1338(b) so that the jurisdiction of this Court can be invoked over the unfair competition claims. On September 30, 1966, I issued an order sustaining counts two through four of the complaint and indicated that an opinion would follow. What follows are the reasons which underlie my decision.

STATEMENT OF FACTS

The plaintiffs are distributors of cookware and cooking utensils. They are engaged in the business of house-to-house, or direct sale, of their products. The plaintiffs allege that the corporate defendants unlawfully infringed two of their copyrighted works "Foresight, Inc." and "American Maid, Inc." These books are used by plaintiffs' sales personnel as visual aids in selling their cookware. Books of this type are commonly referred to in the trade as "sales presentation books". As I understand the sales methods involved, the pages of the books are arranged in the form of flip charts, which contain graphic and/or text material. The pages are turned sequentially by the salesman so that they serve as an aid to the logical progression of the salesman's "talk". The plaintiffs allege that the defendants have infringed their copyrights by making a series of display cards and other writings bound together in a loose-leaf book and by "preparing" a Sales Manual and "Society Sales Presentation", and other sales material. The corporate defendant is alleged to have "published" these works by showing them to third-parties, presumably during sales talks. The plaintiffs allege also that these writings are substantially the same as their copyrighted material.

In the second count the plaintiffs have alleged that their copyrighted works have acquired a "secondary meaning" and are identified by the public with their products. Thus, they allege that by publishing, distributing, displaying and otherwise marketing a series of display cards and other writings bound together in a loose-leaf "volume" copied substantially from plaintiffs' works; the defendants (corporate and individually) have caused them irreparable injury.

In count three the plaintiffs allege that they have created, over a period of years, a "valuable and unique training, promotional, solicitation, merchandising, sales and reporting program." In addition, they allege that they have developed "forms, techniques, manuals and devices" as a means of providing training for their personnel. These "trade secrets" were confidentially imparted to the individual employees now employed by the defendants, and who themselves are defendants in this action. Thus, count three clearly states a claim for unfair competition.

Finally, in count four the corporate defendants are alleged to have conspired with the individual defendants to "systematically" induce employees or agents of the plaintiffs to leave their (plaintiffs') employ, copy and divulge trade secrets and customer lists, etc., for the purpose of injuring plaintiffs' business. As does count three, the fourth count states a claim for unfair competition and unfair trade practices. The plaintiffs seek relief in the form of an injunction and damages.

If the challenged sections of the plaintiffs' complaint are to be sustained, this result must follow because of the doctrine of pendent jurisdiction as incorporated in § 1338(b). What follows is an analysis of that doctrine, particularly bearing in mind its recent development, and also the intent of Congress in enacting § 1338(b)—to the extent that its intent is discernible and relevant.

PENDENT JURISDICTION AND HURN v. OURSLER

The doctrine of "pendent jurisdiction" received major recognition in Hurn v. Oursler, 289 U.S. 238, 53 S.Ct. 586, 77 L.Ed. 1148 (1933). In that case the petitioners brought suit to enjoin the production of a play which they contended infringed the copyrighted and uncopyrighted versions of another play to which they held production rights. Jurisdiction was based on the copyright laws as to the copyrighted version and state laws of unfair competition as to the uncopyrighted play. The trial court considering the claim of infringement, on the merits, found that there had been no infringement of the copyright laws of the United States. It decided also that, in view of its finding of non-infringement, it was without jurisdiction to entertain the claim based on unfair competition, based as it was on state law. The Supreme Court held that where two grounds, one federal, the other non-federal, are urged in support of the same cause of action, a federal court has jurisdiction to adjudicate both grounds—providing, of course, that the federal ground is substantial. In deciding this point the Court made this distinction:

Thus the rationale of Hurn v. Oursler, supra, appeared to preclude the complete adjudication of cases, such as the one now before us, which present not merely two grounds in support of the same cause of action, but more than one cause of action—or claim for relief. The prevailing interpretation seemed to be that adopted by the Court of Appeals for the Second Circuit in Musher Foundation v. Alba Trading Co., 127 F.2d 9 (2 Cir. 1942). In that case, which involved a claim of trade mark infringement combined with one of unfair competition, the Court held that a federal court had no jurisdiction to adjudicate the state law claim. It noted that it saw:

Thus, the post Hurn cases tended to view the doctrine with a certain degree of severity.1 In 1948, Congress codified the rule of Hurn v. Oursler in the Judiciary Act. This, however, did not definitively settle the problems raised in that case. Therefore, it is necessary to examine the interpretation which the Court of Appeals for the Third Circuit has given to Section 1338(b).

THE INTERPRETATION OF § 1338(b) Section 1338(b) reads as follows:

Clearly then by enacting § 1338(b) Congress intended to accept Hurn v. Oursler, supra, and possibly to extend it. The reviser's notes to Title 28 observed that:

In Hook v. Hook & Ackerman, Inc., 233 F.2d 180 (3 Cir.1956), the Court of Appeals for the Third Circuit held that the reported decisions were clear that a district court may not assume jurisdiction of a state claim merely because it is joined in the same complaint with a federal claim. In so doing it upheld the trial judge's dismissal of a claim of unfair competition because the facts were "in no way related to the facts upon which the infringement suit was based."

The Court extended its interpretation of § 1338 somewhat, in O'Brien v. Westinghouse Electric Corporation, 293 F.2d 1 (3 Cir.1961) where it permitted the joinder of an unfair competition claim in which the alleged unfair practices pre-dated the complained of infringement. In Family Circle, Inc. v. Family Circle Associates, Inc., 332 F.2d 534 (3 Cir.1964), the Court of Appeals upheld the joinder of a claim of unfair competition with a suit for trademark infringement; however, the facts there were very similar to the "pure" pendent jurisdiction problem in Hurn v. Oursler, supra.

The most recent treatment of the problem in this Circuit, was that given by Judge Marsh in The Peterson System, Inc. v. Masters System of Correlated Handwriting, 224 F.Supp. 957 (D.C., 1963), Peterson System, Inc. v. Morgan, 228 F.Supp. 744 (1964) (W.D.Pa.). In Peterson, the Court refused to permit the joinder of an unfair competition claim where the plaintiff alleged breach of contract and confidential relation, misuse of trade secrets and tortious solicitation of customers. Judge Marsh felt himself bound by previous rulings of the Court of Appeals and by his own interpretation of the reviser's notes to § 1338(b), supra. Thus, 228 F.Supp. at p. 745, he said:

Clearly, if the present complaint is governed by the doctrine expressed in Peterson—which, I might add, accurately reflected the state of the law, at least at that time—then at least two of the four counts would have to be dismissed. However, since Peterson, the Supreme Court decided United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), in which it reinterpreted the rule of Hurn v. Oursler, supra. It is in light of this new understanding that I must rule on the motion now before this Court.

THE NEW UNDERSTANDING

The Gibbs case involved an action brought against a union for secondary boycott, and for interference with contracts of employment and haulage. The respondent was awarded compensatory and punitive damages for alleged violations of § 303 of the Labor-Management Relations Act of 1947, and the common law of Tennessee. The Court held that the trial judge rightly upheld the state claims under the pendent jurisdiction doctrine. It held that with the adoption of the Federal Rules of Civil Procedure and the unified form of action, much of the uncertainty over the meaning of "cause of action" has abated. The Court noted also that:

What follows is the heart of the proposition:

Finally, the Court noted that the power need not be exercised in every case in which it is found to exist. It then enunciated the standards which were to be applied:

Thus in Gibbs the Court abandoned the limitations placed on the scope of the pendent jurisdiction doctrine by Hurn v. Oursler, supra. There is, however, one point which must be considered before we reach the question of the joinder of the three additional counts.2 The question is that of Congressional intent as it pertains to Section 1338(b).

As recorded earlier, Congress, in enacting § 1338(b), intended, at the very least, to codify the rule of Hurn v. Oursler, supra. I must now decide whether Congress by specifically adopting that rule as to patents, trade marks and copyrights intended to preclude an extension of the pendent jurisdiction doctrine as it applies to these types of cases. I conclude that it did not so intend.

There are two factors which lead to this conclusion. First, the fact that Congress specifically announced that it had intended to follow the rule of Hurn v. Oursler, and the reference made in the reviser's notes to § 1338 to the majority and dissenting opinions in Musher Foundation v. Alba Trading Co., supra. Second, the reference, in the reviser's notes, to the desire to avoid "piecemeal" litigation.

As to the first factor, the reference to Hurn v. Oursler, supra, indicates that Congress wished to leave the way open to the Courts to deal with the jurisdictional problem as they wished. The very fact that the statute refers to "claim[s]" and not to "cause of action" indicates that Congress intended to give the Courts a certain degree of flexibility in the interpretation of the pendent jurisdiction doctrine incorporating the spirit of the Federal Rules of Civil Procedure, pertaining to joinder of claims.

The reference made by the reviser to Musher Foundation, supra, demonstrates that Congress was aware of the opposing viewpoints on the doctrine, and, chose to leave the resolution of this matter up to the courts.

Finally, we turn to the most significant reason for arriving at this conclusion which is the policy against "piecemeal" litigation. It is true that the reviser's notes speak of "common-law and statutory copyright, patent, and trade-mark rights" which might suggest that only the common-law equivalents of these statutory actions were to be joined, however, it is quite likely that this statement was a mere reference to the facts in Hurn v. Oursler, supra, and I so find.

THE COMPLAINT

There are two factors which point the way to the resolution of this question. Both are supplied by Gibbs. They are (a) a factual nucleus constituting one "cause of action" in the "Constitutional" sense, and (b) Judicial economy. All of the facts in this litigation arise out of a series of alleged events all or most of which occurred contemporaneously. They allegedly are the infringement of copyrights; the misleading of the public because of the "secondary meaning" attached to the plaintiffs' product (a fact most intimately related to the infringement as a matter of proof); the misuse of trade secrets and interference with contractual relationships. Conceivably, the plaintiffs might, for example, be able to prove interference with contractual relationships although failing to prove that their copyrights were infringed. Yet it is likely that plaintiffs will try to prove, that, at the very least, the copyrighted material involved so technical an understanding of how it was to be presented that these facts, if proved, would show an interference with contractual relationships, disclosure of trade secrets and unfair competition because the use of the display books had acquired a "secondary meaning."

The example given above indicates that the facts of the transactions alleged by the plaintiffs are likely to be so interwoven that a joinder of claims would serve the convenience of the parties, and, judicial economy.3

I find that the claims have a "factual nucleus" and can be sustained under 28 U.S.C. 1338(b) and therefore the motion to dismiss is denied.