Fuji Photo Film Co., Ltd. v. Jazz Photo Corp.

• Decision Date: 14 January 2005
• Docket Number: No. 03-1331.,No. 03-1324.,03-1324.,03-1331.
• Citation: 394 F.3d 1368
• Parties: FUJI PHOTO FILM CO., LTD., Plaintiff-Cross Appellant, v. JAZZ PHOTO CORP., Jazz Photo Hong Kong Ltd., and Jack Benun, Defendants-Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

394 F.3d 1368

FUJI PHOTO FILM CO., LTD., Plaintiff-Cross Appellant, v. JAZZ PHOTO CORP., Jazz Photo Hong Kong Ltd., and Jack Benun, Defendants-Appellants.

No. 03-1324.

No. 03-1331.

United States Court of Appeals, Federal Circuit.

January 14, 2005.

COPYRIGHT MATERIAL OMITTED

Lawrence Rosenthal, Stroock & Stroock & Lavan LLP, of New York, New York, argued for plaintiff-cross appellant. With him on the brief were Matthew W. Siegal, Lisa A. Jakob, Angie M. Hankins and Kevin C. Ecker.

Donald P. Jacobs, Budd Lamer, P.C., of Short Hills, New Jersey, argued for defendants-appellants.

Before: CLEVENGER, RADER, and LINN, Circuit Judges.

RADER, Circuit Judge.

On March 18, 2003, the United States District Court for the District of New Jersey entered final judgment against Jazz Photo Corp., Jazz Photo Ltd., and Jack Benun, a former Jazz director and consultant, (collectively Jazz) for infringement of Fuji Photo Film Co. Ltd.'s (Fuji's) patents. Fuji Photo Film Co. v. Jazz Photo Corp., No. 99-2937 (D.N.J. Mar. 18, 2003) (Final Order). Specifically, the district court found that Jazz's importation, sale, and use of over forty million refurbished disposable cameras directly infringed Fuji's family of U.S. patents directed to disposable cameras, also known as lens fitted film packages (LFFPs). Fuji Photo Film Co. v. Jazz Photo Corp., 249 F.Supp.2d 434, 452 (D.N.J.2003). Because the district court did not err in finding Jazz liable for direct and induced infringement, in awarding damages based upon the jury's reasonable royalty rate, in refusing to enhance those damages, or in denying Fuji a permanent injunction, this court affirms.

I.

Fuji and Jazz are no strangers to this court. Their dispute began in 1998, when Fuji commenced a proceeding before the International Trade Commission (ITC) against twenty-six respondents, including Jazz, under Section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1337. Through the ITC proceeding, Fuji sought to restrict the respondents' importation of refurbished LFFPs, alleging infringement of fourteen of its patents directed to LFFPs.¹ LFFPs are simple, relatively inexpensive cameras that Fuji originally intended to be disposable after a single use. See, e.g., U.S. Patent No. 4,884,087 (issued Nov. 28, 1999), col. 6, II. 14-18 (noting that "forming an opening in the film package makes it impossible to reuse the film package. Therefore it will be impossible to refill a new film into the used film package in order to reclaim a film package for reuse."). In response to public protest of the camera shell disposals, Fuji began a recycling program in 1991. Fuji subsequently learned that several companies, including Jazz, purchased used LFFP shells from foreign factories. These companies then refurbished the LFFPs by inserting new film through multiple steps. Then they resold the refurbished cameras. Upon learning of these resales, Fuji instituted the ITC proceeding.

The primary issue before the ITC was whether the respondents' refurbishment of Fuji's used LFFPs constituted permissible repair or impermissible reconstruction. Although the participating respondents did not disclose their respective refurbishment acts in their entirety, each acknowledged performance of at least eight common steps when refurbishing the Fuji LFFPs.² The ITC administrative judge determined that those eight steps constituted impermissible reconstruction. In the Matter of Certain Lens-Fitted Film Packages, Inv. No. 337-TA-406, IRD at 86 (Int'l Trade Comm'n. Feb. 24, 1999). The ITC subsequently adopted the administrative judge's findings. In the Matter of Certain Lens-Fitted Packages, Inv. No. 337-TA-406, n. 4 (Int'l Trade Comm. June 28, 1999). Accordingly, the ITC issued a general exclusion order and an order to cease and desist from further infringement of Fuji's patents. Fuji, 249 F.Supp.2d at 440.

Before the ITC issued its final determination, Fuji filed suit against Jazz in the United States District Court for the District of New Jersey seeking damages and injunctive relief for direct and indirect infringement of its LFFP patents. Following the ITC's final determination, however, some of the ITC respondents filed an appeal with this court. The district court stayed its proceedings pending that appeal. In August 2001, this court reversed the ITC's final determination, finding instead that the eight-step refurbishment procedure constituted permissible repair. Jazz Photo Corp. v. Int'l Trade Comm'n, 264 F.3d 1094, 1110-11 (Fed.Cir.2001). Moreover, this court held that only LFFPs first sold in the United States qualified for the repair exclusion under the exhaustion doctrine. Id. at 1105.

This court's holding in Jazz, however, was not entirely dispositive of the repair/reconstruction issue before the district court. In particular, Jazz acknowledged that its specific refurbishment procedures comprised a possible total of nineteen refurbishment steps, including the eight previously considered in Jazz. Accordingly, the district court lifted its stay and Fuji's lawsuit proceeded.

A series of stipulations entered into by both parties significantly shape the course of this litigation. First, in order to alleviate discovery burdens, both parties stipulated to the use of the record developed before the ITC (Discovery Stipulation). Fuji, 249 F.Supp.2d at 441. Next, both parties stipulated to a special verdict jury form that generally queried whether Jazz's supplier factories performed each of the nineteen refurbishment steps. In other words, the form did not query the jury for each of Jazz's eight supplier factories, located in China, but rather grouped the refurbishment steps generally as one inquiry. Id. The parties then stipulated that the district court would not be bound by the advisory jury determination of the number of repaired LFFPs as reflected in the district court's October 17, 2002 letter/Order to counsel, entered into the record on October 21, 2002. Finally, during trial, the parties stipulated and the district court instructed the jury that Fuji had not sought an order in either the ITC or the district court compelling discovery in the Chinese factories.

Of relevance to this appeal, after a five week trial, the jury determined that: 1) Jazz infringed Fuji's patents by refurbishing 39,889,850 LFFPs; 2) Jazz willfully infringed by selling 1,209,760 newly-made LFFPs; and 3) Jazz owed a reasonable royalty of $0.56 per LFFP to compensate for infringement. Fuji, 249 F.Supp.2d at 441. After the jury reached its verdict, the district court evaluated the repair/reconstruction issue as well as the underlying exhaustion issue.

In its analysis, the district court first determined that the nineteen steps were effectively sub-steps of the eight steps that this court previously deemed permissible repair. Id. at 447 ("[T]he procedures found by the jury to have been performed in this case all devolve into opening the cameras, replacing the film and battery, and closing the cameras.") As such, the district court then evaluated which of the eight Jazz Chinese factories performed these nineteen steps. Although Jazz had presented testimony regarding three Chinese factories, the district court rejected Jazz's proposed inference that its evidence represented the refurbishment activities at the remaining five Chinese factories. Id. at 448. Upon reviewing the record to adduce the number of refurbished LFFPs attributable to the three Chinese factories, the district court determined that the only evidence of record reflected 10%, or 4,009,937, of the LFFPs were permissibly repaired.

Recognizing that the repair affirmative defense is based upon the exhaustion doctrine, the district court next turned its analysis to the issue of foreign LFFP sales. Id. at 448-49 (the "finding of repair with respect to approximately 4 million cameras does not end the inquiry, because a refurbished disposable camera infringes unless it was permissibly repaired from an empty camera shell first sold in the United States"). The district court interpreted this court's Jazz exhaustion precedent in holding that only first sales in the United States would serve as the appropriate basis for the repair affirmative defense. Id. at 449. Based on evidence presented by both parties, the jury determined that roughly 9.5%, or 3,809,442, of Jazz's refurbished LFFPs derived from United States first sales. Id. at 451. The district court then evaluated the nexus of refurbished LFFPs (1) that were first sold in the United States, and (2) which Jazz permissibly repaired. Recognizing the difficulty in requiring direct proof of the number of LFFPs fitting this description, the district court reasoned that it would be appropriate to infer that 9.5% of the 4,009,937 total potentially permissibly repaired cameras were attributable to United States first sales. Accordingly, the district court determined that Jazz's evidence supported a finding that 380,944 LFFPs fit these criteria. Id. at 452.

After the trial, Jazz filed a JMOL motion challenging the jury's findings of willfulness, inducement, and the reasonable royalty rate. Id. at 452-59. The district court denied Jazz's JMOL motion, finding that substantial evidence supported the jury verdict, but declined to enhance damages for the willful infringement of the newly-made LFFPs. The district court further held Mr. Benun liable for inducing Jazz's infringement of Fuji's disposable camera patents. Id. at 457-58. Accordingly, the district court awarded total damages to Fuji in the amount of $29,765,280.60, based on the jury's determination of a $0.56 reasonable royalty per camera.³ Final Order, slip op. at 2. Moreover the district court denied Fuji's request for permanent injunctive relief. Id., slip op. at 2 n. 1.

On appeal, Jazz challenges the district court's finding that it did not provide sufficient evidence that all eight of its Chinese supplier factories performed the nineteen repair steps. Jazz also...