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IRWIN INDUSTRIAL TOOL COMPANY v. OROSZ

August 27, 2003

IRWIN INDUSTRIAL TOOL COMPANY, FORMERLY KNOWN AS AMERICAN TOOL COMPANY, PLAINTIFF,
v.
STEVEN J. OROSZ, JR. AND CHARLES F. SCHROEDER, DEFENDANTS



The opinion of the court was delivered by: John W. Darrah, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff, Irwin Industrial Tool Company ("Irwin"), filed a multi-count amended complaint against Defendants, Steven J. Orosz ("Orosz") and Charles F. Schroeder ("Schroeder"). Count I seeks a declaratory judgment of non-infringement of the United States Patent No. 5,836,081 (`"081 Patent"); Count II seeks a declaratory judgment of the invalidity of the `081 Patent claims; Count III alleges unfair competition under the Lanham Act; Count IV alleges commercial disparagement under Illinois common law; Count V alleges a violation of the Illinois Uniform Deceptive Trade Practice Act; Count VI alleges a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act; and Count VII alleges tortious interference with business relations. Defendants have moved to dismiss the claims against them for lack of personal jurisdiction and, alternatively, to have the case transferred to the federal court in the Northern District of Ohio.

Irwin, formerly known as American Tool Company, is a Delaware corporation with its principal place of business in Freeport, Illinois. On a nationwide basis, Irwin markets and sells the STRAIT-LINE® laser product which resembles a basic tape measure and produces a laser [ Page 2]

"chalkline" for use in building and construction-related projects. The STRAIT-LINE® laser product is designed and marketed for various tool and hardware retailers and distributors, such as Ace Hardware Corporation ("Ace"), one of Irwin's larger clients.

Orosz, a resident of Oregon, Ohio, is the listed inventor and two-thirds interest owner of the `081 Patent, The `081 Patent is for a portable light beam leveling device and method for leveling transducer devices for such as in systems for invasive medical monitoring of hemodynamics. Schroeder, a resident of Toledo, Ohio, is the assignee and owner of a one-third interest in the `081 Patent.

On or about July 8, 2002, Orosz initially contacted Irwin through an e-mail regarding a new product idea; Orosz also told Irwin that he and his company, OroTEK, had just received patents on a laser level. In a follow-up letter sent to Irwin in Vernon Hills, Illinois, Schroeder informed Irwin that rights under the `081 Patent were still available. On or about September 24, 2002, Irwin informed Orosz that it had no interest in purchasing any rights under the `081 Patent.

On or about December 20, 2002, Schroeder responded to Irwin's rejection in a letter alleging that Irwin's STRAlT-LlNE® laser product is an intentional infringement upon the `081 Patent, which Schroeder stated that he intended to protect. In response to this allegation, Irwin replied in a letter, asking that Defendants explain their infringement position and stating that Irwin's STRAIT-LINE® laser product lacks at least one element of each claim of the `081 Patent. On January 23, 2003, Schroeder wrote another letter to Irwin in Illinois, repeating both the allegation of patent infringement and threats of their legal rights.

Soon after the January 23 letter, Orosz contacted Ace, in Oakbrook, Illinois, in an alleged attempt to harm Irwin's STRAIT-LINE® laser product position in the marketplace and to interfere [ Page 3]

with Irwin's customer relationships. Orosz told Ace that the STRAIT-LINE® laser product infringes upon the `081 Patent. In response to Orosz's allegation, Ace demanded and received an agreement from Irwin that states that Irwin will indemnify Ace in any patent infringement suits that the Defendants may bring. Soon after this, Schroeder contacted John Wilke ("Wilke"), Irwin's in-house counsel in Vernon Hills, Illinois, threatening to inform the rest of Irwin's customers that the STRAIT-LINE® laser product infringes upon the `081 Patent. Then, in a February 21, 2003 letter, Schroeder threatened to exercise "one or more of the options available" to Defendants if Irwin would not "resolve the matter" with them.

Defendants have moved to dismiss the case, alleging that this Court lacks personal jurisdiction over the Defendants.

The plaintiff bears the burden of demonstrating the existence of personal jurisdiction. RAR, Inc. v. Turner Diesel, Ltd., 107 F.3d 1272, 1275 (7th Cir. 1997) (RAR). The allegations in the complaint are taken as true unless controverted by the defendants' affidavits. Any conflicts in the affidavits submitted by the parties are resolved in the plaintiffs favor. See Berthold Types Ltd. v. European Mikrograph Corp., 102 F. Supp.2d 928, 930 (N.D. Ill. 2000), citing Turnock v. Cope, 816 F.2d332, 333 (7th Cir. 1987).

In patent infringement lawsuits, Federal Circuit law is controlling with deference given to the state's highest court to determine whether personal jurisdiction over the defendants exits. See LSI Indus. Inc. v. Hubbell Lighting, 232 F.3d 1369, 1371 (Fed. Cir, 2000) (LSI Indus.). However, the law of the regional circuit, as opposed to the Federal Circuit, is applied in situations where the issue of personal jurisdiction with respect to the non-patent counts is not "intimately linked" to patent law. Silent Drive, Inc. v. Strong Indus., Inc., 326 F.3d 1194, 1201 (Fed. Cir. 2003) (Silent [ Page 4]

Drive); Amana Refrigeration, Inc. v. Quadlux, Inc., 172 F.3d 852, 857 (Fed. Cir. 1999) (Amana), The personal jurisdictional holdings of the Federal Circuit cannot suppress a district court's appropriate exercise of personal jurisdiction in regards to non-patent claims which possess an independent basis for jurisdiction. See Silent Drive, 326 F.3d at 1203-1206.

In the instant case, Counts I and II are "intimately linked" to patent law; and, thus, Federal Circuit law must be applied to these claims. However, in Count III, Irwin alleges an independent federal count that is not "intimately linked" to federal patent law, i.e., unfair competition and violation of the Lanham Act. Accordingly, the law of this regional circuit is applied to Count Ill. See Silent Drive, 326 F.3d at 1206. Furthermore, if this Court has personal jurisdiction over the Defendants for Count Ill, supplemental jurisdiction pursuant to 28 U.S.C.S. § 1367(a) confers supplemental personal jurisdiction in regards to the remaining counts. See Silent Drive, 326 F.3d at 1206.

In cases involving federal questions, a plaintiff must show that (1) the defendant is amendable to service of process and (2) the exercise of personal jurisdiction over the defendant comports with due process under the Fifth Amendment of the United States Constitution. Euromarket Designs, Inc. v. Crate & Barrel, Ltd., 96 F. Supp.2d 824, 833-34 (N.D. Ill. 2000) (Euromarket).

The Illinois long-arm statute provides, in part, that personal jurisdiction may be exercised over defendants that commit certain enumerated acts within Illinois or "on any other basis . . . permitted by the Illinois Constitution and the Constitution of the United States". 735 ELCS ยง 5/2-209(a)(2), (c). Because of this broad statute, "the statutory analysis collapses into a due process ...


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