Salton, Inc. v. Philips Domestic Appliances & Personal Care B.V.

391 F.3d 871, 73 U.S.P.Q. 2d (BNA) 1205, 2004 U.S. App. LEXIS 25076
CourtCourt of Appeals for the Seventh Circuit
DecidedDecember 7, 2004
DocketNos. 04-1042, 04-1359, 04-2994
StatusPublished
Cited by24 cases

This text of 391 F.3d 871 (Salton, Inc. v. Philips Domestic Appliances & Personal Care B.V.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Salton, Inc. v. Philips Domestic Appliances & Personal Care B.V., 391 F.3d 871, 73 U.S.P.Q. 2d (BNA) 1205, 2004 U.S. App. LEXIS 25076 (7th Cir. 2004).

Opinion

POSNER, Circuit Judge.

Saltón and Philips are competing makers of kitchen appliances. In August of last year Saltón filed a diversity suit in the federal district court in Chicago against Philips, Saltón being a citizen of Delaware and Illinois and Philips a citizen of the Netherlands. 28 U.S.C. § 1332(a)(2). Saltón sought a declaration that it had not misappropriated any of Philips’s trade secrets. After accelerated discovery, the district court dismissed the suit on the ground that another company, Electrical & Electronics (E & E), was an indispensable party, which is to say a necessary party that could not be joined in the suit and in whose absence the suit could not “in equity and good conscience” proceed. Fed.R.Civ.P. 19(b). Saltón, though it had filed the suit, was content to see it dismissed. But Philips, which had counterclaimed and wants to litigate the counterclaim in the district court in Chicago, appeals from the dismissal. After the dismissal, moreover, Philips refiled a copyright claim that had been part of its counterclaim as an independent suit, which the district judge also dismissed, primarily on the ground that her previous ruling had determined that E & E was an indispensable party. Philips appeals this dismissal as well. Finally, after both suits were dismissed, E & E, which had intervened in the copyright suit (where its presence did not deprive the district court of jurisdiction, because jurisdiction over that suit was based on the presence of a federal claim rather than on diversity of citizenship), asked the district court to enjoin Philips from litigating its claims anywhere but in Hong Kong. The district court denied the injunction and E & E has appealed. The appeal is frivolous, as was the motion for an injunction. The district court had lost jurisdiction because a notice of appeal had been filed. Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58, 103 S.Ct. 400, 74 L.Ed.2d 225 (1982) (per curiam); Grube v. Lau Industries, Inc., 257 F.3d 723, 731 (7th Cir.2001). Also, the premise of the motion — that Philips shouldn’t be allowed to litigate its claims in the district court in Chicago — is, as we shall see, unsound.

Several years ago Philips started selling a new machine for the home brewing of single servings of coffee. The novelty was that the ground beans used to brew the coffee are inserted into the machine in the form of prepackaged “pods” each of which contains the right amount of coffee for one serving. The machine was manufactured for Philips under contract by E & E, a Hong Kong firm, using proprietary information provided by Philips, including computer software. E & E promised in the contract not to reveal any of this information to third parties. And even though E & E contributed to the development of the coffee machine as well as manufacturing it, the contract gives Philips a proprietary interest in “any and all ideas, improvements, developments, discoveries and inventions” arising from the development of the product even if E & E rather than Philips was the source of the innovation. The contract requires that any dispute arising out of it be litigated in the courts of Hong Kong.

[875]*875Philips was not the only firm to hire E & E to make a “pods” coffee machine. Saltón did so as well. And in May of last year Philips sued E & E in the High Court of Hong Kong, claiming that E & E had used Philips’s proprietary information (“trade secrets” in U.S. legal parlance) in making Salton’s machine. In a separate suit in that court against E & E, Philips charged copyright infringement. This claim is similar though not identical to the copyright claim against Saltón that Philips wants to litigate in Chicago. It is not identical because the unauthorized copies of Philips’s copyrighted software were made by E & E when it manufactured the coffee machines, not by Saltón, so if Saltón is liable for copyright infringement it is so by virtue not of copying but of making an unauthorized distribution of copyrighted materials. 17 U.S.C. § 106(3); Ortiz-Gonzalez v. Fonovisa, 277 F.3d 59, 62 (1st Cir.2002); Cable/Home Communication Corp. v. Network Productions, Inc., 902 F.2d 829, 843 (11th Cir.1990).

Saltón was not a party to the litigation in Hong Kong between Philips and E & E, but it reacted to it, and to a letter from Philips threatening to sue Saltón, by suing Philips in Chicago two months later for declaratory relief; that is the suit that has given rise to the first of the two appeals before us. E & E was permitted to intervene for the limited purpose of arguing that it was an indispensable party. Zych v. Wrecked Vessel Believed to be the Lady Elgin, 960 F.2d 665, 670 (7th Cir.1992); Fitzgerald v. Unidentified Wrecked & Abandoned Vessel, 866 F.2d 16 (1st Cir.1989).

At first Saltón took no position on the question of E & E’s indispensability, but it has now swung around to the view that E & E is indeed an indispensable party. If so, then since E & E like Philips is a foreign corporation and there is no diversity jurisdiction over a case in which there are foreign parties on both sides of the suit and a U.S. citizen on only one side, Extra Equipamentos E Exportaçáo Ltda. v. Case Corp., 361 F.3d 359, 361 (7th Cir.2004); see 28 U.S.C. § 1332(a), adding E & E as a party would destroy federal jurisdiction, and so the suit was properly dismissed. Philips presented a federal question in its counterclaim by charging a violation of U.S. copyright law, but claims in a counterclaim cannot confer federal jurisdiction over a case. Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826, 830-32, 122 S.Ct. 1889, 153 L.Ed.2d 13 (2002); E.I. Du Pont de Nemours & Co. v. Okuley, 344 F.3d 578, 583 n. 3 (6th Cir.2003).

Having supported E & E in getting the suit in Chicago dismissed, Saltón intervened in the Hong Kong litigation between Philips and E & E. That litigation is pending.

There is much that is puzzling about this multiplex litigation. As Philips had not yet sued Saltón when Saltón brought its declaratory judgment action in Chicago, the natural explanation for that suit would be that Saltón wanted to litigate in Chicago. This would be no surprise, because Salton’s headquarters are in a Chicago suburb. But if Saltón wanted to litigate in Chicago badly enough to jump the gun by seeking declaratory relief, thus in effect accelerating Philips’s suit against it, why does it now defend the district judge’s dismissal? By the same token, since there is no reason to think that Philips wanted to litigate against Saltón in the latter’s home base, why is Philips now fighting the dismissal? The briefs do not say, and questioning at oral argument elicited no credible answers. The parties may have learned things in the discovery process that altered their views of the likely out[876]*876come or consequences of the Chicago litigation, but that is just conjecture.

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Bluebook (online)
391 F.3d 871, 73 U.S.P.Q. 2d (BNA) 1205, 2004 U.S. App. LEXIS 25076, Counsel Stack Legal Research, https://law.counselstack.com/opinion/salton-inc-v-philips-domestic-appliances-personal-care-bv-ca7-2004.