Studiengesellschaft Kohle, m.b.H. v. Dart Industries, Inc.

• Decision Date: 14 December 1988
• Docket Number: 88-1087 and 88-1088,Nos. 88-1052,s. 88-1052
• Citation: 9 USPQ2d 1273,862 F.2d 1564
• Parties: , 9 U.S.P.Q.2d 1273 STUDIENGESELLSCHAFT KOHLE, m.b.H., Plaintiff-Appellant, v. DART INDUSTRIES, INC., and Kraft, Inc., Defendants/Cross-Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1564

862 F.2d 1564

57 USLW 2419, 9 U.S.P.Q.2d 1273

STUDIENGESELLSCHAFT KOHLE, m.b.H., Plaintiff-Appellant, v. DART INDUSTRIES, INC., and Kraft, Inc., Defendants/Cross-Appellants.

Nos. 88-1052, 88-1087 and 88-1088.

United States Court of Appeals, Federal Circuit.

Dec. 14, 1988.

Arnold Sprung of Sprung Horn Kramer & Woods, New York City, argued for plaintiff-appellant. With him on the brief was Nathaniel D. Kramer.

Stanton T. Lawrence, III of Pennie & Edmonds, New York City, argued for defendant/cross-appellant Dart. With him on the brief were Thomas F. Reddy, Jr. and James G. Markey.

Thomas V. Heyman of Dewey, Ballantine, Bushby, Palmer & Wood, New York City, argued for defendant/cross-appellant Kraft. With him on the brief was Claire Ann Koegler. Of counsel were E. Norman Veasey and Robert H. Richards, III of Richards, Layton & Finger, Wilmington, Del.

Before MARKEY, Chief Judge, and RICH and NEWMAN, Circuit Judges.

RICH, Circuit Judge.

These appeals are from an accounting in a patent suit. The accounting trial was held before a special master who assessed damages, as of October 31, 1986, at $69,942,450. The district judge reviewed the master's report on the parties' objections, finding certain errors. In an August 13, 1987, Opinion the district judge identified and corrected the errors and arrived at a revised award of $43,756,784.71 as of the date of judgment, September 30, 1987. We affirm.

I. The parties and the Litigation

Plaintiff Studiengesellschaft Kohle m.b.H. (SGK) is successor in interest to Dr. Karl Ziegler, Nobel prize-winning scientist and inventor. This litigation began in July 1970 when SGK sued Dart Industries, Inc., in the District of Delaware, alleging infringement of Ziegler's U.S. Patent No. 3,113,115 ('115), which covers broadly certain catalysts useful for commercial production of polymers of lower alpha-olefins. Kraft, Inc., the second defendant, only later became a party as a result of a corporate reorganization. For convenience, we refer to defendants jointly as "Dart." We use the names "Ziegler" and "SGK" interchangeably.

Trial was held before District Judge Caleb M. Wright, who held that Dart had not carried its burden of proving the '115 patent invalid and that Dart's polypropylene operation in Odessa, Texas, infringed the patent. We affirmed that decision and remanded for an accounting. Studiengesellschaft Kohle mbH v. Dart Industries, 549 F. Supp. 716, 216 USPQ 381 (D.Del.), aff'd, 726 F.2d 724, 220 USPQ 841 (Fed.Cir.1984). Judge Wright's Opinion reviewing the master's report is reported at 666 F.Supp. 674, 4 USPQ2d 1817. Familiarity with these opinions is assumed.

II. Standard of Review

We addressed the issue of appellate review of a decision of a district court which rejects findings of a master in Milliken Research Corp. v. Dan River, Inc., 739 F.2d 587, 222 USPQ 571 (Fed.Cir.1984). We apply the standard of review stated in Milliken, 739 F.2d at 592-93, 222 USPQ at 576.

III. Issues

The objections to the master's report and the arguments here on appeal have centered on three areas: (1) the amount of damages to be awarded SGK; (2) whether Dart willfully infringed the '115 patent; and (3) whether SGK should be awarded prejudgment interest and, if so, the rate and periods for which it should be awarded. Since, as stated in Milliken, our task is to review the trial court's judgment, the issues are:

1. Whether the district court erred in concluding that the master's finding of a 4.0% reasonable royalty was clearly erroneous.

2. If not, whether the court's substitute finding of a reasonable royalty of 2.5% plus a fully creditable down payment is clearly erroneous.

3. Whether the district court erred in concluding that the master's finding that Dart willfully infringed the '115 patent was clearly erroneous.

4. Whether the district court abused its discretion in adopting the master's recommendation of an award of prejudgment interest at the prime rate compounded quarterly.

IV. Opinion

A. The Role of the District Court

Initially, SGK expresses concern that the district court reviewed the master's findings of fact under an improper standard. SGK notes that while the district court paid "frequent homage" to the clearly erroneous standard it was bound to apply under Fed.R.Civ.P. 53(e)(2), "[n]evertheless, some portions of the opinion read as if the Court were subconsciously applying the normal decision making authority of a federal district judge, i.e., a de novo consideration of the evidence in light of the arguments first made to him."

We do not share this concern. Judge Wright devoted the better part of a printed page of his Opinion to scope of review, and he understood that the court's "freedom to alter the Master's determination [was] limited because the Master's findings of fact must be adopted unless they are clearly erroneous." So it is no accident that references to the clearly erroneous standard appear throughout the body of his Opinion. Moreover, the court did not merely give lip service to the standard. In each instance where a finding was held clearly erroneous, that conclusion was well supported by reason.

B. The Master's Finding of a 3.7 to 4.0% Floor

The master used a hypothetical negotiation to fix a reasonable royalty, after rejecting an argument that the evidence proved an established royalty. He considered a host of relevant factors and made many findings, most of which Judge Wright adopted. The master rejected the testimony of Dart's expert, Mr. Goldscheider, and credited that of SGK's expert, Professor Bischel. The master's approach was to identify a range of royalties the parties would consider in the negotiations, and he fixed the lowest royalty or "floor" which Ziegler would consider at 3.7 to 4.0%, based on Ziegler's 1950's licenses, which contained most favored licensee clauses. He explained:

The negotiators would be aware of the 1950's licenses entered into by Ziegler at the sliding scale of 4-3-2[%] plus up front payments. Ziegler's negotiators would certainly point out that it could not license the '115 below the 4-3-2 scale, particularly in light of the most favored licensee clauses contained in those licenses. Professor Bischel testified, and I find, that the effective rate of the 4-3-2 [licenses] would be approximately 2.1% or 2.2% without consideration of the down payments made by the licensees. The up-front or down payments would have to be added into the royalty rate. Professor Bischel's opinion was that the effective rate plus the down payment would lead to a hypothetical rate not less than 3.7% to 4.0%. (R.6151). That is the rate that would have to be entered into in order to avoid any most favored licensee clause in the 1950's licenses so that SGK would not be required to refund money or lower rates to its earlier licensees. (R.6150-51).

Judge Wright decided the master's determination that the floor should be between 3.7 and 4.0% was a clear factual and legal error. As to the fact error, Judge Wright saw two possible factual bases for the master's arrival at a 3.7 to 4.0% floor. SGK does not argue the plausibility of the master's first basis--that "the up-front or down payments would have to be added into the royalty rate"--which Judge Wright identified as clearly erroneous, so we need not consider that point.

The second possible basis for the master's use of a 3.7 to 4.0% floor lay in the testimony of Professor Bischel, which is set out in the margin. ¹ Judge Wright accepted Bischel's premise that Ziegler received certain economic benefits from the use of a down payment/running royalty arrangement as opposed to a straight running royalty, such as time use of the down payment money and decreased risk that future royalty payments might be withheld. Judge Wright rejected, however, Bischel's factually unsupported conclusion that these benefits would translate into a jump from an effective royalty of 2.1 to 2.2% plus a creditable down payment, to a straight royalty of 3.7 to 4.0% if Ziegler had chosen to negotiate a straight running royalty.

SGK argues it was the district court that erred because the master was not clearly erroneous in accepting Professor Bischel's floor. First, SGK says that since Bischel was not cross-examined by Dart on his testimony concerning a floor, the master's crediting of this "uncontroverted" expert testimony cannot be clearly erroneous. According to SGK, Federal Rule of Evidence 705 makes clear that Bischel did not have to affirmatively testify to his mental processes and calculations in arriving at his 3.7 to 4.0% floor. SGK adds that since the master required no underlying facts or data, if any were desired, it was incumbent on Dart to raise the same by cross-examination, citing United States v. Santarpio, 560 F.2d 448, 454-55 (1st Cir.), cert. denied sub nom. Schepici v. United States, 434 U.S. 984, 98 S.Ct. 609, 54 L.Ed.2d 478 (1977). Second, SGK asserts that the floor which Judge Wright ultimately adopted would have been more costly to Dart than the master's 3.7 to 4.0% floor over the first five years of any agreement, the implication being that the master's floor can hardly have been clearly erroneous.

We accept the premise of SGK's first argument but reject the conclusion SGK draws. Rule 705 of the Federal Rules of Evidence, set out in the margin, ² addresses the circumstances under which an expert must disclose the facts or data underlying an opinion. We agree that pursuant to Rule 705 Bischel was not obligated to reveal the facts or data underlying his opinion on a floor, because Dart did not cross-examine on this issue and the master did not require otherwise. But nothing in Rule 705 bears on the circumstances under which the trier of fact or a reviewing court is required to credit expert testimony.

In the Santarpio case, an expert gave an opinion without describing or explaining the relevance of the factors upon which he based it. He was not cross-examined regarding his...