Paper Converting Machine Co. v. Magna-Graphics Corp.

• Decision Date: 28 September 1984
• Docket Number: No. 84-738,MAGNA-GRAPHICS,84-738
• Citation: 745 F.2d 11
• Parties: PAPER CONVERTING MACHINE COMPANY, Appellee, v.CORPORATION, Appellant. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 11

745 F.2d 11

223 U.S.P.Q. 591

PAPER CONVERTING MACHINE COMPANY, Appellee, v. MAGNA-GRAPHICS CORPORATION, Appellant.

Appeal No. 84-738.

United States Court of Appeals Federal Circuit.

Sept. 28, 1984.

Glenn O. Starke, Milwaukee, Wis., argued for appellant. With him on the brief was Eugene R. Sawall, Milwaukee, Wis.

Jerome F. Fallon, Chicago, Ill., argued for appellee.

Before RICH, Circuit Judge, NICHOLS, Senior Circuit Judge, and NIES, Circuit Judge.

NICHOLS, Senior Circuit Judge.

This appeal is from a judgment of the United States District Court for the Eastern District of Wisconsin (Reynolds, C.J.), 576 F.Supp. 967, entered on December 1, 1983, and awarding plaintiff Paper Converting Machine Company (Paper Converting) $893,064 as compensation for defendant Magna-Graphics Corporation's (Magna-Graphics) willful infringement of United States Patent No. Re. 28,353. We affirm-in-part and vacate-in-part.

I

Although the technology involved here is complex, the end product is one familiar to most Americans. The patented invention relates to a machine used to manufacture rolls of densely wound ("hard-wound") industrial toilet tissue and paper toweling. The machine, commonly known as an automatic rewinder, unwinds a paper web continuously under high tension at speeds up to 2,000 feet per minute from a large-diameter paper roll--known as the parent roll or bedroll--and simultaneously rewinds it onto paperboard cores to form individual consumer products.

Before the advent of automatic rewinders, toilet tissue and paper towel producers used "stop-start" rewinders. With these machines, the entire rewinding operation had to cease after a retail-sized "log" was finished so that a worker could place a new mandrel (the shaft for carrying the paperboard core) in the path of the paper web. In an effort to increase production, automatic rewinders were introduced in the early 1950's. These machines automatically moved a new mandrel into the path of the paper web while the machine was still winding the paper web onto another mandrel, and could operate at a steady pace at speeds up to about 1,200 feet per minute.

In 1962, Nystrand, Bradley, and Spencer invented the first successful "sequential" automatic rewinder, a machine which not only overcame previous speed limitations, but also could handle two-ply tissue. This rewinder simultaneously cut the paper web and impaled it on pins against the parent roll. Then, after a new mandrel was automatically moved into place, a "pusher" would move the paper web away from the parent roll and against a glue-covered paperboard core to begin winding a new paper log.

On April 20, 1965, United States Patent No. 3,179,348 (the '348 patent) issued, giving to Paper Converting (to whom rights in the invention had been assigned) patent protection for machines incorporating the sequential rewinding approach. On September 1, 1972, Paper Converting applied to have the claims of the '348 patent narrowed by reissue, and on March 4, 1975, United States Patent No. Re. 28,353 (the '353 patent) issued on this application. The '353 patent, like the original '348 patent on which it is based, received an expiration date of April 20, 1982. Claim 1 of the '353 patent defines the improvement in the web-winding apparatus as an improvement comprising:

(C) means for transversely severing said web to provide a free leading edge on said web for approaching a mandrel on which said web is to be wound in said path, and

(D) pin means extensibly mounted on said roll for maintaining a web portion spaced from said edge in contact with said roll, and pusher means extensibly mounted on said roll to urge said maintained web portion against an adjacent mandrel.

Paper Converting achieved widespread commercial success with its patented automatic rewinder. Although there are not many domestic producers of toilet tissue and paper toweling, Paper Converting has sold more than 500 machines embodying the invention.

In 1979, Paper Converting brought the present action against Magna-Graphics for infringement of the '353 patent. After a trial concerning only issues of liability, the district court held the '353 patent valid and found it willfully infringed, 211 USPQ 788 (E.D.Wis.1981). It awarded treble damages, finding that Magna-Graphics had acted without the advice of counsel as to the change it made in its machines to avoid infringement. The Seventh Circuit affirmed, 680 F.2d 483 (7th Cir.1982). The parties commendably raise no issues here which the Seventh Circuit has already decided as to Magna-Graphics' liability.

When the district court held the accounting for damages (after the Seventh Circuit had affirmed it on the liability portion of the case), it found that Magna-Graphics had made two sales of infringing rewinders and associated equipment: one to the Fort Howard Paper Company (Fort Howard) under circumstances to be described, and one to the Scott Paper Company (Scott). The court awarded to Paper Converting $112,163 for Magna-Graphics' sale to Scott, and $145,583 for Magna-Graphics' sale to Fort Howard. The court then trebled these damages, and added $119,826 as prejudgment interest on the untrebled award. This appeal is from the judgment awarding damages.

II

Magna-Graphics asserts reversible error in virtually every element of the district court's "accounting" or award of damages. In particular, Magna-Graphics contends that the district court erred in (1) finding the sale, substantial manufacture, and delivery of the Fort Howard rewinder to be an infringement, (2) basing the damages award on Paper Converting's lost profits, (3) adopting an incremental income theory when determining Paper Converting's lost profits, (4) computing Paper Converting's lost profits based on the value of the entire rewinder line as opposed to the patented rewinder alone, and (5) awarding prejudgment interest to Paper Converting. Despite Magna-Graphics' many arguments, however, we are not persuaded that the district court made any reversible error in its lengthy and detailed analysis of its accounting.

III

A

Magna-Graphics first argues that it should bear no liability whatsoever for its manufacture, sale, or delivery of the Fort Howard rewinder because that machine was never completed during the life of the '353 patent. We disagree.

In early 1980 Fort Howard became interested in purchasing a new high-speed rewinder line. Both Paper Converting and Magna-Graphics offered bids. Because Magna-Graphics offered to provide an entire rewinder line for about 10 percent less than did Paper Converting, it won the contract. Delivery would have been before the '353 patent expired. Magna-Graphics began to build the contracted for machinery, but before it completed the rewinder, on February 26, 1981, the federal district court in Wisconsin determined that a similar Magna-Graphics' rewinder built for and sold to Scott infringed the '353 patent. The court enjoined Magna-Graphics from any future infringing activity.

Because at the time of the federal injunction the rewinder intended for Fort Howard was only 80 percent complete, Magna-Graphics sought a legal way to fulfill its contract with Fort Howard rather than abandon its machine. First, Magna-Graphics tried to change the construction of the rewinder so as to avoid infringement. It submitted to Paper Converting's counsel three drawings illustrating three proposed changes, and asked for an opinion as to whether the changes would avoid infringement. Paper Converting's counsel replied, however, that until a fully built and operating machine could be viewed, no opinion could be given. Magna-Graphics, believing such a course of action unfeasible because of the large risks in designing, engineering, and building a machine without knowing whether it would be considered an infringement, instead negotiated with Fort Howard to delay the final assembly and delivery of an otherwise infringing rewinder until after the '353 patent expired in April 1982.

Magna-Graphics thereafter continued to construct the Fort Howard machine, all the while staying in close consultation with its counsel. After finishing substantially all of the machine, Magna-Graphics tested it to ensure that its moving parts would function as intended at a rate of 1,600 feet of paper per minute. Although Magna-Graphics normally fully tested machines at its plant before shipment, to avoid infringement in this instance, Magna-Graphics ran its tests in two stages over a period of several weeks in July and August of 1981.

To understand Magna-Graphics' testing procedure, it is necessary to understand the automatic transfer operation of the patented machine. First, from within a 72-inch long "cutoff" roll, a 72-inch blade ejects to sever the continuous web of paper which is wound around the bedroll. Then, pins attached to the bedroll hold the severed edge of the web while pushers, also attached to the bedroll, transfer the edge of the web towards the mandrel (the roll on which the paperboard core is mounted).

In the first stage of its test, Magna-Graphics checked the bedroll to determine whether the pushers actuated properly. It installed on the bedroll two pusher pads instead of the thirty pads normally used in an operating machine. It greased the pads and operated the bedroll to determine whether the pads, when unlatched, would contact the core on the mandrel. (Magna-Graphics greased the pads so as to provide a visual indication that they had touched the core.) During this stage of tests, no cutoff blades or pins were installed.

In the second stage of the test, Magna-Graphics checked the cutoff roll to determine whether the cutting blade actuated as intended. It tested the knife actuating mechanism by installing into the cutoff roll a short 4-inch section of cutter blade rather than the 72-inch blade normally used. After taping a 4-inch wide piece of paper to the outer surface of the cutoff roll, Magna-Graphics operated the cutoff...