Studiengesellschaft Kohle mbH v. Dart Industries

Citation666 F. Supp. 674,4 USPQ 2d 1817
Decision Date13 August 1987
Docket NumberCiv. A. No. 3952-CMW.
PartiesSTUDIENGESELLSCHAFT KOHLE m.b.H., Plaintiff, v. DART INDUSTRIES, INC., and Kraft, Inc., Defendant.
CourtUnited States District Courts. 3th Circuit. United States District Court (Delaware)

COPYRIGHT MATERIAL OMITTED

Howard M. Handelman, of Bayard, Handelman & Murdoch, Wilmington, Del., Arnold Sprung, and Nathaniel D. Kramer, of Sprung, Horn, Kramer & Woods, New York City, of counsel; for plaintiff.

Arthur G. Connolly, Jr., of Connolly, Bove, Lodge & Hutz, Wilmington, Del., Thomas F. Reedy, Jr., Stanton T. Lawrence, III, and John R. Lane, of Pennie & Edmonds, New York City, of counsel; for defendant, Dart Industries, Inc.

E. Norman Veasey, and Robert H. Richards, III, of Richards, Layton & Finger, Wilmington, Del., Thomas V. Heyman, Claire Ann Koegler, and Leora Ben-Ami, of Dewey, Ballantine, Bushby, Palmer & Wood, New York City, of counsel; for defendant, Kraft, Inc.

OPINION

CALEB M. WRIGHT, Senior District Judge.

In July of 1970, litigation began between Studiengesellschaft Kohle mbH ("SGK") and Dart Industries ("Dart") concerning Dart's alleged infringement of United States Patent No. 3,113,115 ("'115") issued to Dr. Karl Ziegler, the predecessor in interest to SGK. This Court held the '115 patent to be valid and infringed. Studiengesellschaft Kohle mbH v. Dart Industries, 549 F.Supp. 716 (D.Del.1982), aff'd, 726 F.2d 724 (Fed.Cir.1984). Now before the Court, twenty-three years after infringement began and seventeen years after the litigation started, are the objections the parties filed to the Special Master's assessment of damages based upon an accounting trial held before the Master.1 The Master assessed a total damage award, as of October 31, 1986, of $69,942,450. The compensatory damage award was $18,169,360. The pre-judgment interest award, which continues to grow, was $42,688,410. The Master also assessed enhanced damages of $9,084,068 and awarded plaintiff attorneys' fees.

This Court's prior opinion provides an explanation of the '115 patent and its relationship to the Dart catalyst. Briefly,

The '115 patent teaches a system for the polymerization of ethylene and other lower olefins, including propylene. The catalyst system consists of alkyl aluminum halides, especially diethyl aluminum chloride, and titanium halides, especially titanium tetrachloride. The interaction of these components produces a catalyst that has proven singularly active, effective and efficient in producing high grade plastic polymers. 549 F.Supp. at 722.

The Court held that the Dart catalyst used for producing polypropylene infringed the '115 patent:

Thus, the Dart catalyst performs essentially the same function, the polymerizaton of propylene, in essentially the same way, catalysis at an active site created by the interaction of trivalent titanium chloride and diethyl aluminum chloride, to achieve substantially the same result, the production of commercially useful, e.g., isotactic, polypropylene. Id. at 754.

The Federal Circuit affirmed the Court's determination of validity and infringement and remanded the case to the Court for the accounting phase of the trial. By Order dated March 15, 1985, the Court appointed a Special Master to hold an accounting trial to determine the amount of damages to be awarded SGK; whether pre-judgment interest should be awarded SGK and the rate and periods for which it should be awarded; whether the infringement was willful and therefore increased damages should be awarded; and whether this was an exceptional case for which attorneys' fees should be assessed. The Master issued his Final Report on November 25, 1986. Pursuant to Fed.R.Civ.P. 53(e)(2), the parties filed objections to the Final Report which are the subject of this Opinion.

I. THE MASTER'S REPORT

The three major issues on review concern the Master's rulings with respect to the reasonable royalty rate, willful infringement, and pre-judgment interest. The Master's assessment of attorneys' fees is derived from his determination that the infringement was willful. The statutory bases for the Master's damage assessment are 35 U.S.C. §§ 284, 285 (1982).2

On the reasonable royalty rate issue, the Master calculated a royalty rate of 4% of total net sales based upon a hypothetical negotiation between the parties in the benchmark environment, the time that infringement began. The Master rejected the probative value of the various existing licenses before undertaking the hypothetical negotiation analysis. The licenses he considered included the following:

1. The Ziegler-SGK Licensing Program of the 1950's ("4-3-2 Licenses"): These licenses provided for running royalties at a decreasing rate of 4%-3%-2% depending upon quantity and required up-front payments that were fully creditable against future royalties. A fully creditable up-front payment is a lump sum payment that is then used to offset money due on the running royalty. The licenses also contained "most favored licensee" provisions that would require SGK to charge the licensee a lower royalty rate if a later licensee were granted a rate lower than the rate being charged under the 4-3-2 license. The 4-3-2 Licenses granted rights to use all of the Ziegler United States Patent Rights and certain technological assistance.
2. Ziegler Pool Licenses ("Pool Licenses"): These licenses, granted jointly by Ziegler and Montecatini, gave licensees rights under both Ziegler and Montecatini patents at the standard sliding scale royalty rate of 5.5%. Montecatini, later known as Montedison, owned patents closely related to Ziegler's. Ziegler was to receive 30% of the royalties received under the Pool Licenses.
3. Standard 1970 Offer: SGK offered a sliding scale royalty of 1.5%, 1.2%, and 1.0% to the industry during the pendency of the Phillips litigation.
4. The settlement of the litigation between Ziegler and Phillips Petroleum Company: After the Fifth Circuit held the '115 patent to be valid and infringed by Phillips, Ziegler v. Phillips, 483 F.2d 858 (5th Cir.1973), cert. denied, 414 U.S. 1079, 94 S.Ct. 597, 38 L.Ed.2d 485 (1973), Phillips settled the damages phase by paying a lump sum amount, which was equivalent to an effective royalty rate of 5% for past infringement, and agreeing to a 1.5% running royalty for the future. The effective rate of this entire settlement, based on Phillips' production, was a royalty of 2.15%.

The Master cited to other agreements in his analysis, but, as with the above, he found that none of the agreements either established or tended to establish a reasonable royalty.

Because the Master found that he could not determine a royalty rate from the existing rates alone, he applied the hypothetical negotiation methodology. The Master considered a myriad of factors that would have affected the bargaining positions of both parties had they actually negotiated an agreement. Among the important factors the Master noted were the status of the '115 as a pioneer patent;3 the lack of a non-infringing alterative; Dart's anticipated profits of 30%; and SGK's status as a non-manufacturing, licensing patentee.

On the willfulness issue, the Master found that Dart should have received an opinion from outside counsel prior to commencing the infringement, that in-house counsel's opinions did not satisfy Dart's duty of due care, and that post-infringement activities as a matter of fact, not law, did not change the willfulness finding. The Master found that pre-judgment interest at the prime rate compounded quarterly with accrual to commence on the day following the end of each quarter of infringement would fairly compensate SGK for the lost use of the royalty payment money.

II. SCOPE OF REVIEW

The Court reviews the Master's report pursuant to the procedure established in Fed.R.Civ.P. 53. After a hearing, the Court "may adopt the report or may modify it or may reject it in whole or in part or may receive further evidence or may recommit it with instructions." Fed.R.Civ.P. 53(e)(2). The Master's Report is only advisory; it is the Court that must render judgment. "The findings of a master, to the extent that the court adopts them, shall be considered as the findings of the court." Fed.R.Civ.P. 52(a). Ultimately, "it is the district court that makes an adjudication upon the facts and law and enters judgment." 5A Moore's Federal Practice ¶ 53.128 (1986). This Opinion represents the Court's Findings of Fact and Conclusions of Law pursuant to Fed.R.Civ.P. 52.

Despite the fact that the Court must enter the judgment, the Court's freedom to alter the Master's determination is limited because the Master's findings of fact must be adopted unless they are clearly erroneous. Fed.R.Civ.P. 53(e)(2). This standard is similar to the standard circuit courts of appeals apply to district court findings of fact. 5A Moore's Federal Practice ¶ 53.124. Similarly, conclusions of law have "no effect except to the extent that they are correct propositions of law." Id. at ¶ 53.126.

The Supreme Court's most recent statement on the meaning of the clearly erroneous standard is found in Anderson v. Bessemer City, 470 U.S. 564, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985).4 "If the district court's Master's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals the district court may not revise it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently." Id. at 573-574, 105 S.Ct. at 1512. However, even if there is some evidence to support the Master's view, the district court may judge a finding to be clearly erroneous when "on the entire evidence the court is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948). Deference to the factfinder's conclusions is greatest with respect to credibility determinations, but the factfinder "may insulate his findings...

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