Allen Archery, Inc. v. Browning Mfg. Co., s. 89-1309

• Decision Date: 19 March 1990
• Docket Number: 89-1310,Nos. 89-1309,s. 89-1309
• Citation: 898 F.2d 787
• Parties: , 14 U.S.P.Q.2d 1156 ALLEN ARCHERY, INC., Plaintiff-Appellant, v. BROWNING MANUFACTURING COMPANY, Browning, Defendants/Cross-Appellants. ALLEN ARCHERY, INC., Plaintiff-Appellant, v. BINGHAM PROJECTS, INC., Elmont L. Bingham, and Joyce M. Bingham, Defendants-Appellees. BROWNING MANUFACTURING COMPANY, Plaintiff/Cross-Appellant, v. ALLEN ARCHERY, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 787

898 F.2d 787

58 USLW 2572, 14 U.S.P.Q.2d 1156

ALLEN ARCHERY, INC., Plaintiff-Appellant, v. BROWNING MANUFACTURING COMPANY, Browning,

Defendants/Cross-Appellants.

ALLEN ARCHERY, INC., Plaintiff-Appellant, v. BINGHAM PROJECTS, INC., Elmont L. Bingham, and Joyce M.

Bingham, Defendants-Appellees.

BROWNING MANUFACTURING COMPANY, Plaintiff/Cross-Appellant, v. ALLEN ARCHERY, INC., Defendant-Appellant.

Nos. 89-1309, 89-1310.

United States Court of Appeals Federal Circuit.

March 19, 1990.

D.A.N. Chase, Linde Thomson Langworthy Kohn & Van Dyke, P.C., Overland Park, Kan., for plaintiff-appellant. With him on the brief were Harlan H. Huebner, Law Offices of Harlan P. Huebner, Los David V. Trask, Trask, Britt & Rossa, Salt Lake City, Utah, for defendants-appellees. With him on the brief was Thomas J. Rossa.

Angeles, Cal. and Robert R. Mallinckrodt, Mallinckrodt & Mallinckrodt, Salt Lake City, Utah.

Before RICH, Circuit Judge, FRIEDMAN, Senior Circuit Judge, and MILLS, ^* District Judge.

FRIEDMAN, Senior Circuit Judge.

These are an appeal and a cross-appeal from a judgment of the United States District Court for the District of Utah in the accounting phase of a patent infringement suit awarding damages. Allen Archery, Inc. v. Browning Mfg. Co., Final Judgment on Accounting, No. NC 77-0072-A (D. Utah Dec. 30, 1988). The issues involve the basis upon which the district court determined the amount of the reasonable royalty (which was the measure of damages) and the correctness of the district court's award of prejudgment and compound interest. We vacate in part, affirm in part, and remand for further proceedings.

I

A. In 1977, the appellant Allen Archery, Inc. (Allen) filed suits against the appellees Browning and its wholly owned subsidiary Browning Manufacturing Company (Browning Mfg.) (collectively referred to as the Browning defendants) and three others. The suits charged that the defendants had infringed Allen's '495 patent covering an archery bow known in the trade as a "compound bow" and that Browning Mfg. had breached a patent licensing agreement with Allen.

Prior to filing these suits, Allen had filed suit in the United States District Court for the Central District of California charging that Jennings Compound Bow, Inc., had infringed the Allen patent. The Browning defendants moved for a stay of proceedings in this case pending the decision in Jennings. Allen initially opposed the stay. Allen then requested the Judicial Panel on Multidistrict Litigation to consolidate discovery in the present case with the Jennings case. The panel denied the request, but suggested that to avoid duplicate efforts the parties could seek stays. Allen and the defendants then filed a joint motion to stay the present case until Jennings was decided, which the district court granted. The result was that the present case was stayed for approximately three years.

After trial, the court in Jennings held that six claims of the Allen patent were invalid and that four other claims were valid and infringed. Allen Archery, Inc. v. Jennings Compound Bow, Inc., 211 USPQ 206, 215 (C.D.Cal.1981). The Ninth Circuit affirmed. Allen Archery, Inc. v. Jennings Compound Bow, Inc., 686 F.2d 780, 216 USPQ 585 (9th Cir.1982).

B. The present case then was tried in the court on the liability issues. The court first ruled that Allen had not engaged in inequitable conduct before the Patent Office, so that the patent was not unenforceable on that ground. Allen Archery, Inc. v. Browning Mfg. Co., 226 USPQ 315, 320 (D.Utah 1985).

After a further trial, the court held that the four claims of the Allen patent asserted in this case were valid and enforceable, and that the defendants had infringed those claims. It further ruled that Allen and Browning Mfg. had entered into an enforceable patent licensing agreement, that Browning Mfg. had breached the agreement, and that Allen was entitled to recover the royalties specified in the agreement.

In a lengthy opinion, this court affirmed the district court's judgment in all respects. Allen Archery, Inc. v. Browning Mfg. Co., 819 F.2d 1087, 2 USPQ2d 1490 (Fed.Cir.1987).

C. In the accounting phase of the case, Allen introduced a three-volume report of an examination of the books of Browning and Browning Mfg. by an accounting firm The district court held that Allen was entitled to damages equal to "a reasonable royalty for the use made of the compound bow invention by Browning and [Browning Mfg.]," Conclusion of Law 2, and that the proper royalty rates were those in the non-exclusive licenses "offered by Allen and accepted by other compound bow manufacturers," which constituted "an established royalty that meets the test for reasonableness" of this court. Conclusion of Law 3. The parties do not challenge either of these rulings.

                which the district court described as "comprehensive."    Allen Archery, Inc. v. Browning Mfg. Co., Findings of Fact and Conclusions of Law Re:  Damages, No. NC 77-0072-A, slip op. at 3 (Dec. 22, 1988).  The accountant who prepared the report testified at the hearing on damages.  Id. at 4
                

The court found that the accountant "properly identified all compound bows manufactured and sold by [Browning Mfg.] and Browning for the period of the accounting," Finding 11, and that "[t]he assessment of damages is properly computed on all compound bows manufactured and sold by [Browning Mfg.] and/or Browning as set forth in the accountants' report...." Finding 12.

The Allen licensing agreement, which the district court held was the proper basis for computing a reasonable royalty, stated that the net selling price of the bows, upon which the royalty was calculated, "shall be based on a genuine invoice or billhead price established in normal, bona fide, arms-length transactions." Finding 19 (quoting the "revised Allen license agreement of July 1, 1977").

Browning Mfg. manufactures archery bows. Finding 16. Browning is a seller of sporting goods, including archery equipment. Browning acquires the merchandise from related and unrelated manufacturers and resells it to distributors and dealers. Finding 15. The district court found that Browning Mfg. sold "[s]ubstantially all" of the compound bows it manufactured to Browning for resale by the latter, Finding 16, and that "[m]ost" of the compound bows Browning sold were manufactured by Browning Mfg. Finding 17.

The court found that Browning Mfg. "sells bows to Browning at a price jointly established by management of the companies." Finding 18. It further found that "[a]lthough Allen has asserted that the close relationship between Browning and [Browning Mfg.] establishes that their dealings with each other are not at arm's length, no evidence was introduced comparing [Browning Mfg.] and Browning's bow prices with the prices charged by other, unrelated manufacturers for comparable bows." Finding 20. The court concluded that "the net selling prices of bows at the [Browning Mfg.] level are the prices to which the royalty rates of Findings 2 and 3 should be applied for the purposes of this accounting." Finding 22.

The court held that Allen was entitled to prejudgment interest, Finding 24, except for the

period of approximately three years in 1978-81 during which this case was stayed pending the outcome of the Jennings litigation in California. Responsibility for the three-year delay must be shared equally by both Allen and Browning/[Browning Mfg.], as the stay was granted by this court pursuant to a joint motion by the parties.

Finding 25 (citation omitted).

The court computed the prejudgment interest based on the annualized yield of three-month United States Treasury bills, compounded quarterly. It explained: "The three-month Treasury Bill represents a benchmark as the shortest term, risk-free investment available to ordinary investors and is a proper basis upon which to compensate Allen for the foregone use of the money." Finding 26.

The court's final judgment awarded Allen damages of $1,629,714 and prejudgment interest of $957,712.12.

II

A. In its appeal, Allen challenges the district court's use of the price at which Browning Mfg. sold the infringing bows to

Browning as the basis for calculating the amount of the royalty. Allen contends that the correct price for calculating the royalty was the price at which Browning resold the bows to its customers. We agree.

As noted, the parties do not challenge the district court's use of Allen's industry-wide licensing agreement as the basis for determining the amount of a reasonable royalty. This agreement provides for calculating the royalty as a percentage of the "net selling price," based upon an invoice or billhead price "established in normal, bona fide, arms-length transactions."

The agreement does not address the issue whether the "selling price" in this case was the price at which (1) Browning Mfg. sold to Browning or (2) Browning sold to its customers. The district court used the price at which Browning Mfg. sold to Browning, because "no evidence was introduced comparing [Browning Mfg.'s] and Browning's bow prices with the prices charged by other unrelated manufacturers for comparable bows." The prices at which Browning Mfg. sold to Browning, however, could be the basis for determining a reasonable royalty only if those prices had been "established in normal, bona fide, arms-length transactions," as the license agreement required.

The district court did not find that Browning Mfg.'s prices to Browning were the result of "bona fide, arms-length transactions." It found only that these prices were "jointly established by the management of the companies." That fact, however, does not establish that the companies set the prices as a result of arm's-length bargaining. In the absence of arm's-length bargaining, the prices at which Browning Mfg. sold to Browning were not a "net selling price" under Allen's industry-wide licensing agreement which, as noted, the parties and the district...