B.F. Goodrich Co. v. Consolidated Rubber Tire Co.

• Decision Date: 09 April 1918
• Docket Number: 2529.
• Citation: 251 F. 617
• Parties: B. F. GOODRICH CO. v. CONSOLIDATED RUBBER TIRE CO. et al.
• Court: U.S. Court of Appeals — Seventh Circuit

251 F. 617

B. F. GOODRICH CO. v. CONSOLIDATED RUBBER TIRE CO. et al.

No. 2529.

United States Court of Appeals, Seventh Circuit.

April 9, 1918

Charles Neave, of New York City, and Samuel E. Hibben, of Chicago Ill., for appellant.

Charles W. Stapleton, of New York City, for appellees.

Suit for injunction to restrain infringement of Grant patent, No 554,675, and for accounting for infringement of such patent. The Grant patent was issued February 18, 1896, and its validity was sustained by the Supreme Court April 10, 1911. See Diamond Rubber Co. v. Consolidated Rubber Tire Co., 220 U.S. 428, 31 Sup.Ct. 444, 55 L.Ed. 527. This patent traveled a rocky road, its validity being constantly questioned; no less than 15 courts being required to pass upon its validity. It was twice held invalid (Goodyear Tire & Rubber Co. v. Rubber Tire Wheel Co., 116 F. 363 53 C.C.A. 583; Rubber Tire Wheel Co. v. Victor Rubber Tire Co., 123 F. 85, 59 C.C.A. 215); both decisions being by courts in the Sixth circuit, where several large rubber manufacturing companies were located. In all other suits, the patent was sustained. In addition to this litigation over its validity, the scope of the patent was passed upon by 17 courts. We are, perhaps, at present concerned only in one, the decision of the United States Supreme Court. Woodward Co. v. Hurd, 232 U.S. 428, 34 Sup.Ct. 409, 58 L.Ed. 670. In various accountings for the infringement of this patent, appellee has secured favorable decrees in 5 different courts, to which reference will be made later. Little is left undecided, but each suit presents somewhat different facts.

This history to a certain degree bears upon the amount of damages that should be allowed in this suit. The asserted doubt surrounding its validity affected the sum which the master found to be the 'reasonable royalty' upon which the decree is predicated. The master fixed the same sum per pound of rubber manufactured by the infringer as was fixed by the court in the opinions reported in Consolidated Rubber Tire Co. v. Diamond Rubber Company of New York, 226 F. 455 (approved by the Circuit Court of Appeals in 232 F. 475, 146 C.C.A. 469), and 232 F. 508. The opinion of the District Judge, approving the report of the master in this suit, appears in 237 F. 893. Appellant by this decree was required to pay as damages the sum of $262,298.95, with interest from the date of the master's report.

The suit was begun August 21, 1908. Because of the pendency in the Supreme Court of the United States of litigation between appellee and the Diamond Rubber Company of New York, involving similar issues, the suit was not pressed for trial until after the validity of the patent was determined by that court. Thereafter this suit was dismissed by the District Court (195 F. 764), but later sustained by this court (202 F. 1021, 120 C.C.A. 663). The issues were then referred to a master, who took much testimony and made the findings upon which this decree is predicated. 237 F. 893.

Both parties have appealed. The B. F. Goodrich Company, herein referred to as appellant, is aggrieved because a reasonable royalty was fixed at 5 cents per pound on all rubber manufactured and sold in the United States.

Its contention is that 2 cents per pound would be a liberal allowance. Plaintiffs in the court below, herein called appellees, complain for several reasons: (a) They assert that 10 cents per pound fairly represents the reasonable royalty. (b) They ask interest upon damages from date of infringement. (c) They ask for increased damages under sections 9464, 9467, U.S. Comp. Stat. 1916, because of the willful and aggravated character of the infringement. (d) They ask that royalty be figured on the 1,909,000 pounds of rubber manufactured by appellant and sold abroad.

Infringement extended from June, 1902, excepting for one year (when license was obtained), down to March 30, 1912. During this period appellant manufactured and sold 7,416,176 pounds of Grant rubber tires, of which 242,770 pounds were sold under license, and 1,909,000 pounds were sold abroad. During this same period, appellant's total business amounted to $127,404,644, of which $3,433,133 came from making and selling Grant tires. During this total period its net profits were $19,339,202.

The master's report is full and complete and evidences much study. While too long to be set forth in full, it is in its entirety a most persuasive statement. We quote a few of the findings and conclusions:

'I find as a conclusion of fact: That the profits, or the approximate profits, made by the Goodrich Company on the manufacture and sale of Grant tires, is not disclosed by any of the three accounts already mentioned. The conclusions shown in all of said accounts are based on averages, apportionments, estimates, and assumptions to such an extent, and costs, expenses, credits, and profits were so handled, that such accounts are of no real value as guides in arriving at profits made by the defendant on Grant tires. That owing to the confusion and intermingling in manufacturing and selling of Grant tires with the other products of defendant's factory, and the manner in which the books and records of the business were kept, it is impossible to determine with approximate or reasonable accuracy the profits made on Grant tires during the accounting period. * * *

'I find as a conclusion of fact that, considering the nature of the invention of the Grant patent, its utility and advantages, and the fact that considerable number of licenses were granted, none of them carrying a lower rate of royalty than 5 cents a pound on the rubber tire made and sold, and some carrying a higher rate, at the time the Goodrich Company began to infringe, 5 cents a pound on the rubber tires manufactured and sold by the defendant would have been a reasonable royalty for the Goodrich Company to have paid.'

Findings of Law.

'It appears from the findings of fact that 7,739,749 pounds of rubber tire were manufactured and sold by the Goodrich Company in this country and abroad during the accounting period; that of this amount 1,909,000 pounds were sold abroad, and 242,770 pounds were sold in this country between August 28, 1903, and August 28, 1904, the period during which the pooling agreement was in force. Of the amount sold abroad, 1,115,852 pounds were sold in England.

'I find as a matter of law that 5 cents a pound on the rubber tire manufactured and sold in this country would have been a reasonable royalty at the time the defendant commenced to infringe, and that it would have continued to be a reasonable royalty throughout the accounting period.

'I find that the complainants are entitled to recover of the defendant $262,298.95 as damages, based on a reasonable royalty at the rate of 5 cents a pound on 5,245,979 pounds of rubber tire sold in this country (Dowagiac v. Minnesota, 235 U.S. 641 (35 Sup.Ct. 221, 59 L.Ed. 398); Frumentum v. Lauhoff, 216 F. 610 (132 C.C.A. 614); Bemis v. Brill, 200 F. 749 (119 C.C.A. 229); that the complainants are not entitled to recover anything as damages on account of the rubber tire manufactured and sold abroad (Bullock v. Westinghouse, 129 F. 105 (63 C.C.A. 607); Goodyear v. Rubber Tire Wheel Co. (C.C.) 164 F. 869; Rushmore v. Manhattan (C.C.) 170 F. 188). * * *

'Findings of fact have been made upon which profits may be computed on the principle of apportionment, and this method has met the approval of courts in cases where no separate account was kept of the infringing transactions and no other satisfactory method could be found by which to measure profits. The Tremolo Patent, 23 Wall. 518 (23 L.Ed. 97); Rubber Co. v. Goodyear, 9 Wall. 788, 19 L.Ed. 566; Corbin v. Taussig (C.C.) 137 F. 151. I have chosen to recommend that compensation be awarded in this case on the basis of reasonable royalty, believing that, in view of the number of infringers that entered the field soon after May 6, 1902, when the decision of the Circuit Court of Appeals of the Sixth Circuit was rendered holding the patent invalid, and at about the time the Goodrich Company became an infringer, the ends of justice will be better served by awarding damages based on a reasonable royalty than by awarding profits based on the theory of apportionment.'

Prior to becoming an infringer, appellant made these tires exclusively for appellee, and became acquainted with appellees' business and customers, and it is claimed that, when appellant turned infringer, it took advantage of its knowledge thus acquired and appropriated the business. There was some evidence tending to show the net profit to appellant on this solid rubber tire branch of its business, but intelligent conclusions cannot be drawn therefrom. Appellant's expert accountants made three different reports, no one of which tallied with the other. Its final position seems to be that extreme doubt exists as to whether the solid rubber tire business was not conducted at a loss. Appellees manufactured solid rubber tires under the Grant patent, and it claims that its manufacturing business showed a profit per pound of 6.7 cents.

There was much evidence received tending or intending to establish a 'reasonable royalty.' It appeared that from 1896 to 1902 the patentee granted many licenses, numbering over 200 wherein a fixed royalty was disclosed. It appeared that at first the royalty was fixed at 10 cents per pound, but after two or three years it was raised to 20 cents per pound, and this sum was continued for four or five years. There were privileges granted and restrictions imposed upon the licensees, so that the persuasive character of these figures is impaired. After May 2, 1902, when Judge Lurton declared the patent invalid, the business became demoralized, and licenses were no...