Thompson v. Haynes, 01-1392.
| Decision Date | 30 September 2002 |
| Docket Number | No. 01-1392.,01-1392. |
| Parties | Earl E. THOMPSON, Sr., Plaintiff-Appellant, v. Henry T. HAYNES, Fluid Controls, Inc., and Mighty Clean Corporation, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Federal Circuit |
Frank J. Catalano, Frank J. Catalano, P.C., of Tulsa, OK, argued for plaintiff-appellant.
Stephen R. Ward, Gardere Wynne Sewell LLP, of Tulsa, OK, argued for defendants-appellees.
Before GAJARSA, LINN, and DYK, Circuit Judges.
Earl E. Thompson, Sr. ("Thompson") appeals the judgment, pursuant to Fed. R.Civ.P. 54(b), of the United States District Court for the Northern District of Oklahoma (1) holding, on the counterclaims of defendants Henry T. Haynes, Fluid Controls, Inc., and Mighty Clean Corporation (collectively "Fluid Controls"), that Thompson's sale of his swivel devices constituted a willful violation of the Lanham Act, the Oklahoma Deceptive Trade Practices Act, and the common law pertaining to unfair competition; (2) awarding defendants a total of $2,239,141.52, representing Fluid Controls' lost profits on swivel sales, Thompson's profits on allegedly counterfeit swivels, and damages for an advertising campaign, all trebled and set off against unpaid royalties owed to Thompson by Fluid Controls; and (3) enjoining further unfair competition by Thompson. Thompson v. Haynes, No. 95-CV-1139-H(M) (N.D.Okla. Apr. 18, 2001) ("Judgment"). Because the district court did not err in awarding Thompson's profits to Fluid Controls or in holding that no correction of the inventorship of the United States Patent No. 5,284, 298 ("`298 patent") was merited, and because the district court did not abuse its discretion in issuing an injunction or clearly err in finding Thompson's actions to be willful, we affirm in part. However, because the district court's award of damages based on lost sales was based on speculation, because an award of advertising damages was not merited, and because the district court improperly trebled the award of Thompson's profits, we vacate those portions of the award of damages and remand for further proceedings consistent with this opinion.
In November of 1992, Thompson approached Fluid Controls with a fluid conducting swivel concept. In January of 1993, Thompson and Fluid Controls entered into an agreement to develop the concept and file a patent application. In the agreement, Fluid Controls' president, Henry T. Haynes ("Haynes"), and Thompson were described as the "joint patent applicants." The agreement provided that the patent, if issued, would be assigned to Fluid Controls. The agreement also provided for a royalty to be paid to each of the "patent owners," a phrase that apparently refers to Thompson and Haynes. The `298 patent, which listed Thompson and Haynes as co-inventors, issued on February 8, 1994 and was assigned to Fluid Controls.
For a time, Thompson served as a distributor of the patented swivels, which were manufactured by Fluid Controls. These swivels were sold under the designation "Whirl Jet." After disputes as to the discount at which Thompson was entitled to purchase the Fluid Controls swivels and as to attorney fees, Fluid Controls ceased making royalty payments to Thompson. Thompson then began to produce his own swivels, at least some of which he began to sell in May of 1994 to customers to which he had previously sold Fluid Controls swivels. Thompson filed a separate patent application on an allegedly different swivel device; this application matured to U.S. Patent No. 5,531,308, issued on July 2, 1996.
In June 1994, one of Thompson's customers, Simpson Cleaning Systems, Inc. ("Simpson"), experienced installation problems with swivels manufactured by Thompson. Steve Pauley, the Simpson engineer overseeing the installation process, contacted Fluid Controls for assistance in solving the problem. When Fluid Controls' officials inspected the swivels, they discovered that the swivels were manufactured by Thompson. Fluid Controls sent a letter to Pauley informing him that the swivels infringed the `298 patent and suggesting that Simpson cancel any orders with Thompson and resubmit them directly to Fluid Controls. Thereafter, Simpson ceased doing business with Thompson and began purchasing directly from Fluid Controls.
Fluid Controls then warned its other customers about what it believed to be the unlicensed manufacture and sale of swivels that infringed the `298 patent. One such customer was Steel Eagle. Fluid Controls alleges that Thompson sold substitute swivels to Steel Eagle, although Thompson disputes this. Fluid Controls' officials believed that Steel Eagle's unsatisfactory experiences with the Thompson swivels caused Steel Eagle to rule out the use of Fluid Controls swivels in high-end cleaning devices.
Thompson sued Fluid Controls in the Northern District for Oklahoma for: (1) declaratory judgment of non-infringement of the `298 patent; (2) recovery of unpaid royalties under the agreement with Fluid Controls; (3) an injunction against interference with business relations; (4) damages for unfair business practices; (5) correction of inventorship of the `298 patent to remove Haynes as a co-inventor; (6) rescission of the agreement to assign the `298 patent to Fluid Controls; and (7) infringement of the `298 patent, on the theory that Thompson was the sole owner of all rights in the `298 patent. Fluid Controls counterclaimed for: (1) infringement of the `298 patent; (2) correction of inventorship of the `298 patent to remove Thompson as a co-inventor; (3) unjust enrichment; (4) violations of the Lanham Act and Oklahoma unfair competition law; and (5) declaratory judgment of invalidity of Thompson's `380 patent.
A bench trial was held in January of 1999. On May 25, 1999, the court issued partial findings of fact and conclusions of law. The court, on Thompson's claims, held as a matter of law that no correction of inventorship of the counterclaims, the court found that Thompson had supplied his swivels to Simpson instead of the Fluid Controls swivels without informing Simpson of the substitution and concluded that Thompson had willfully violated the Lanham Act, the Oklahoma Deceptive Trade Practices Act, Okla. Stat. tit. 78, §§ 51-55 ("DTPA"), and the common law relating to unfair competition. The court also found that Thompson's actions resulted in lost sales of at least 100 Fluid Controls swivels per month to Steel Eagle. Thompson v. Haynes, No. 95-CV-1139-H ("Thompson"). The court did not address the remaining claims and counterclaims. The court concluded that Fluid Controls was entitled to injunctive relief, as well as damages, costs, and attorney fees. The court then referred the matter to a magistrate judge, acting as a special master, to complete the accounting.
Based on facts obtained after the trial that Thompson had not disclosed sales of his swivels to two customers, Hydro Tek and Elite Manufacturing, Fluid Controls moved for discovery sanctions against Thompson. The court referred Fluid Controls' motion for discovery sanctions to the same magistrate judge.
The special master issued a report on the accounting ten months later. Thompson v. Haynes, No. 95-CV-1139-H (M) (N.D.Okla. Mar. 28, 2000) ("Special Master's Report"). The special master found that Thompson should be awarded $76,673.98 for unpaid royalties, and that Fluid Controls should be awarded $605,526 in lost sales damages, $133,412.50 for Thompson's profits on swivel sales, and $33,000 in damages for an advertising campaign. Based on the district court's finding of willfulness, the special master recommended that the damages owing to Fluid Controls be trebled and that Fluid Controls be awarded attorney fees, limited to the fees incurred for the Lanham Act and DTPA claims on which it prevailed at trial. The master deferred making a recommendation on attorney fees pending segregation of the fees by claim.
On the sanctions motion, the magistrate judge found that Thompson had failed to meet his discovery obligations and recommended that Thompson be precluded from contesting in any way that his sales of swivels to Hydro Tek and Elite Manufacturing violated the Lanham Act and the DTPA. Thompson v. Haynes, No. 95-CV-1139-H (M) (N.D.Okla. Mar. 28, 2000) ("Sanctions Report").
The district court adopted both reports. Thompson v. Haynes, 95-CV-1139-H (N.D.Okla. Sept. 5, 2000) ("Adopting Order"). In April of 2001, the court issued judgment pursuant to Rule 54(b). As recommended by the special master, the court awarded Fluid Controls damages for lost sales and for conducting an advertising campaign, as well as Thompson's profits, all of which were trebled and offset against the unpaid royalties for a final award to Fluid Controls of $2,239,141.52. Judgment at 2. The court did not award attorney fees. In addition, the court entered a permanent injunction against further unfair competition by Thompson. Id. at 3.
Thompson challenges the district court's determination that his conduct constituted willful unfair competition. He further challenges the award of damages, the entry of a permanent injunction, and the district court's determination on inventorship. We have jurisdiction under 28 U.S.C. § 1295(a).
In deciding non-patent issues, such as trademark, trade dress and other unfair competition issues under § 43(a) of the Lanham Act, this Court applies regional circuit law. Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356, 1359, 50 USPQ2d 1672, 1675 (Fed.Cir.1999) (); KeyStone Retaining Wall Sys., Inc. v. Westrock, Inc., 997 F.2d 1444, 1447, 27 USPQ2d 1297, 1300 (Fed.Cir.1993) (); Atari, Inc. v. JS & A Group, Inc., 747...
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