Bandag, Inc. v. Gerrard Tire Co., Inc., 83-538

• Decision Date: 18 April 1983
• Docket Number: No. 83-538,83-538
• Citation: 217 USPQ 977,704 F.2d 1578
• Parties: BANDAG, INC., Plaintiff-Appellee, v. GERRARD TIRE COMPANY, INC., Defendant-Appellant. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 1578

704 F.2d 1578

217 U.S.P.Q. 977

BANDAG, INC., Plaintiff-Appellee, v. GERRARD TIRE COMPANY, INC., Defendant-Appellant.

Appeal No. 83-538.

United States Court of Appeals Federal Circuit.

April 18, 1983.

George T. Mobille, Washington, D.C., argued for plaintiff-appellee. With him on the brief were J. Samuel Gorham, III, Rocky Mount, N.C., and Robert W. Adams, Hickory, N.C.

John F. Ray, Charlotte, N.C., argued for defendant-appellant. With him on the brief was Charles T. Myers, Charlotte, N.C.

Before RICH, DAVIS and NIES, Circuit Judges.

RICH, Circuit Judge.

This appeal is from the unpublished October 15, 1982, decision of the United States District Court for the Western District of North Carolina, holding appellee Bandag, Inc. (Bandag) entitled to recover from appellant Gerrard Tire Co. (Gerrard) ¹ $71,087.80 in damages and $19,962.19 in accrued interest. That determination followed the February 10, 1982, decision of the Fourth Circuit Court of Appeals affirming the district court's August 3, 1981, judgment that Bandag's U.S. Patent No. 3,236,709, issued February 22, 1966, for a "Tire Recapping Process," was valid and infringed by Gerrard. We reverse and remand.

Background

On August 6, 1980, Bandag brought a civil action in the U.S. District Court for the Western District of North Carolina seeking injunctive and compensatory relief for patent and trademark infringement and unfair competition. Gerrard counterclaimed and filed a third party complaint against certain others for alleged violations of section 2 of the Sherman Antitrust Act, 15 U.S.C. Sec. 2. On October 31, 1980, the court entered a preliminary injunction restraining Gerrard from infringement of Bandag's patent and trademarks.

The court entered judgment against Gerrard on August 3, 1981, whereby it was permanently enjoined from infringement of claims 1-7 of the patent, and from "further infringement of the BANDAG trademark and service mark, or any mark deceptively or confusingly similar thereto as well as against further acts of unfair competition." This judgment was affirmed on February 10, 1982, by the United States Court of Appeals for the Fourth Circuit.

On October 6, 1982, a separate trial was held to determine damages. Bandag presented no evidence to support its claim of damages for trademark and service mark infringement, and its counsel advised the court that such claim was waived.

District Court Opinion

The court began by noting that, at the first trial, it had entered the following findings of fact:

... Defendant Gerrard admitted at trial and in his deposition taken May 6, 1981 that his company used the Bandag method in its operation and set forth the number of tires retreaded in an average day. This infringement began about September 1976 and continued until this Court entered the preliminary restraining order dated October 31, 1980. Gerrard estimated that maybe one-half to three quarters of the tires retreaded during this period used the Bandag method, and that from September 1976 until about the end of 1979 Gerrard was retreading at least one hundred (100) tires per week and that from about the end of 1979 to the 31st day of October [1980] one hundred eighty (180) tires per week.

The average tire retreaded by Gerrard requires about twenty two (22) pounds of tread rubber and cushion gum for retreading operations infringing [Bandag's] Patent. Under the franchises granted since 1970, Bandag receives a royalty and service fee of twenty cents (20 cents) per pound of tread rubber and cushion gum used in the Bandag method. [Emphasis ours.]

Noting that appellant's records indicated that, during the time in question, it used 465,373 pounds of tread rubber and 67,786 pounds of cushion gum in its retreading operation, and that "a reasonable approximation of the amount of such infringement [based on Gerrard's "maybe one-half to three quarters" admission] is two-thirds ( 2/3) of the time," the court applied appellee's "established royalty rate of 20 cents per pound" to the amount of tread rubber and cushion gum used and determined that appellant was entitled to damages in the sum of $71,087.80.

The court also stated that "where a patentee has granted licenses and has an established royalty, the total royalty with interest from the date on which it was payable is the proper measure of the patentee's recovery." [Emphasis ours.] On that basis, it held appellee entitled to interest in the sum of $19,962.19, and a total recovery of $91,049.99.

The court declined to adopt Gerrard's argument that the damages should be limited because of Bandag's failure to mark products of the patented process pursuant to 35 U.S.C. Sec. 287, holding that the notice requirements of that statute refer only to "articles" and do not apply "where the patent is directed to a process or method."

Arguments on Appeal

Gerrard argues, first, that the finding of the district court that a royalty based on the use of cushion gum and tread rubber would be the best measure of damages was clearly erroneous, because "If a reasonable royalty is to be used as the basis for awarding damages, it should be based on the product of the invention and not on incidental products such as tread rubber and cushion gum which could be used in many methods." Gerrard also asserts that the finding that 20 cents per pound constituted an established royalty was also clearly erroneous, as it was based on a royalty and service fee taken from a single franchise agreement, with no allocation between the royalty and service fees. Gerrard emphasizes that, through that franchise agreement, "Bandag agrees to furnish managment [sic] training, sales training, training in the Bandag system, a merchandising program, an audit program, field clinic training programs, advertising, a personnel management program and a sales development program."

Additionally, Gerrard argues that the finding of the court that it used two-thirds of its purchases of tread rubber and cushion gum in infringing Bandag's patent was clearly erroneous. It states that the "admission" relied upon was merely a guess: when Gerrard was asked in deposition how many tires were retreaded using the Bandag method, he concluded, "I don't know." The following exchange then took place:

Question: "Well, would it be the majority of--" Sorry. "Well, it would be the majority of those tires, wouldn't it?"

Answer: "Not necessarily, maybe half of them, maybe three-quarters of them, I don't know, because, you know, Harrellson, Bandag, and all that's all the same thing when you get down to the nitty-gritty of it, you know, it's all the same thing."

Gerrard notes that while "Bandag had the opportunity to examine the records and other employees of Gerrard, it failed to do so."

In addition to repeating the 35 U.S.C. Sec. 287 "marking" argument it made before the district court, appellant contends that the judgment of the court that appellee was entitled to $19,962.19 in interest was clearly erroneous. Because there was no proof of an established royalty, appellant maintains, any interest on damages must run only from the date of a judgment establishing the amount of a reasonable royalty.

Bandag counters that Gerrard's admission constituted a "finding" by the district court which

* * * was affirmed on appeal and is now uncontrovertible. The trial court also entered a finding at the first trial that, since as early as 1970, Bandag's franchise agreements calculated royalty due on the basis of the poundage of tread rubber and cushion gum used in the Bandag method. This too was a finding affirmed by the Appellate Court and stands uncontroverted.

Bandag also argues that the poundage method is "proper since it is in accordance with Bandag's established procedure for calculating royalties under [its] franchise agreements," and the "Courts have repeatedly held that patent royalties may be based on a convenient measure of the possible value of a patent license." [Emphasis ours.] Likewise, Bandag contends,

* * * the use of the "two-thirds" figure is reasonable since it lies halfway between Gerrard's estimated lower and upper limits. As the United States Supreme Court noted in Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 265 [66 S.Ct. 574, 580, 90 L.Ed. 652] (1946), where the available evidence necessitates calculation of damages by the trial court based upon reasonable approximation, such awards have been upheld since "the wrongdoer shall bear the risk of uncertainties which his own wrong has created."

It is also argued by Bandag that the 20-cent figure is appropriate, and "To the extent that such calculations may have exceeded a 'reasonable royalty' the trial court acted properly under the statute since this figure was merely the minimum that could be awarded by the court."

Bandag meets the arguments of Gerrard respecting 35 U.S.C. Sec. 287, and asserts that the application of interest prior to the entry of judgment was in accordance with the law.

Gerrard did not file a reply brief.

OPINION

35 U.S.C. Sec. 287 prescribes that, on penalty of having their damages limited to times subsequent to actual notice, patentees and their agents shall mark any "patented article," thereby giving notice "to the public that the same is patented." (Emphasis ours.) In addition to the clear language of the statute, it is, as noted by the district court, also settled in the case law that the notice requirement of this statute does not apply where the patent is directed to a process or method. E.g., Wine Ry. Appliance Co. v. Enterprise Ry. Equipment Co., 297 U.S. 387, 56 S.Ct. 528, 80 L.Ed. 736 (1936). Accordingly, we affirm the court's holding that damages should not be limited to the infringement that occurred after Gerrard was...