Beatrice Foods Co. v. New England Printing and Lithographing Co.

• Decision Date: 27 February 1990
• Docket Number: Nos. 88-1574,88-1575,s. 88-1574
• Citation: 14 USPQ2d 1020,899 F.2d 1171
• Parties: BEATRICE FOODS COMPANY, Plaintiff-Appellee, v. NEW ENGLAND PRINTING AND LITHOGRAPHING COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1171

899 F.2d 1171

14 U.S.P.Q.2d 1020

BEATRICE FOODS COMPANY, Plaintiff-Appellee, v. NEW ENGLAND PRINTING AND LITHOGRAPHING COMPANY, Defendant-Appellant.

Nos. 88-1574, 88-1575.

United States Court of Appeals Federal Circuit.

Feb. 27, 1990.

James B. Muskal, Leydig, Voit & Mayer, Chicago, Ill., argued for plaintiff-appellee. With him on the brief was Richard M. Johnson.

Theodore W. Anderson, Neuman, Williams, Anderson & Olson, Chicago, Ill., argued for defendant-appellant. With him on the brief were Michael O. Warnecke, Deborah Schavey Ruff and John M. Augustyn.

Before MARKEY, Chief Judge, RICH, Circuit Judge, BENNETT, Senior Circuit Judge, NIES, NEWMAN, ARCHER, MAYER, and MICHEL, Circuit Judges.

PER CURIAM.

In the liability phase this court affirmed the district court's judgment, reported at Beatrice Foods Co. v. New England Printing and Lithographing Co., 224 USPQ 982, 1984 WL 1493 (D.Conn.1984), of infringement by New England Printing and Lithographing Co. ("New England") of three United States patents owned by Beatrice Foods (hereinafter "Webcraft", now the independent company Webcraft Technologies, Inc. and the real party in interest). Beatrice Foods Co. v. New England Printing and Lithographing Co., 758 F.2d 668 (Fed.Cir.1984) (unpublished). On remand the district court determined that this case had not been proven to be "exceptional" within the meaning of 35 U.S.C. Sec. 285 (1982), and declined to reinstate its earlier award of attorney fees. Order, June 5, 1985. An accounting of damages was ordered.

After extensive discovery and other procedures, a trial of damages was held in March 1988. The district court awarded Webcraft damages for patent infringement in the amount of $22,107,837.69, and prejudgment interest. Beatrice Foods Co. v. New England Printing and Lithographing Co., No. B-80-335 (D.Conn. July 14, 1988). The district court imposed a personal sanction on New England's attorneys under 28 U.S.C. Sec. 1927 (1982) for "multiplying the proceedings unreasonably and vexatiously", Order, filed November 19, 1987, and assessed costs, expenses, and attorney fees incurred by Webcraft, in the amount of $17,754.99. Order, July 20,

1988. New England appeals the damages award and the sanction.

DAMAGES

A

Damages "adequate to compensate for the infringement", in the words of 35 U.S.C. Sec. 284 (1982), are usually measured, depending on the circumstances and the proof, as the patent owner's lost profits or as a reasonable royalty. Del Mar Avionics, Inc. v. Quinton Instrument Co., 836 F.2d 1320, 1326, 5 USPQ2d 1255, 1260 (Fed.Cir.1987). Kori Corp. v. Wilco Marsh Buggies & Draglines, Inc., 761 F.2d 649, 653-54, 225 USPQ 985, 987 (Fed.Cir.), cert. denied, 474 U.S. 902, 106 S.Ct. 230, 88 L.Ed.2d 229 (1985).

Citing Panduit Corp. v. Stahlin Bros. Fibre Works, 575 F.2d 1152, 1156, 197 USPQ 726, 729 (6th Cir.1978) and Bio-Rad Laboratories, Inc. v. Nicolet Instrument Corp., 739 F.2d 604, 616, 222 USPQ 654, 663 (Fed.Cir.), cert. denied, 469 U.S. 1038, 105 S.Ct. 516, 83 L.Ed.2d 405 (1984), the district court, in applying Webcraft's lost profits as the measure of damages, found that there was demand for the patented product, that Webcraft had the capability to meet that demand, and that there were no acceptable noninfringing substitutes. The patent owner's burden of proof regarding these elements is one of "reasonable probability." Kori, 761 F.2d at 653, 225 USPQ at 987 (citing Lam, Inc. v. Johns-Manville Corp., 718 F.2d 1056, 1065, 219 USPQ 670, 675 (Fed.Cir.1983)). When the patent holder would reasonably have made the sale, but for the infringement, the award of lost profits is proper. Kori, 761 F.2d at 653, 225 USPQ at 987 (citing Paper Converting Machine Co. v. Magna-Graphics Corp., 745 F.2d 11 at 21, 223 USPQ 591 at 598, (Fed.Cir.1984) and Bio-Rad, 739 F.2d at 616, 222 USPQ at 663).

New England argues that damages should be measured as a reasonable royalty, not lost profits. At the time Webcraft first gave notice of infringement, Webcraft had offered New England a license at an apparently modest royalty rate or a paid-up license, and has since offered and granted royalty-bearing licenses to others. New England argues that Webcraft's offers to license others "where no actual dispute has arisen" is probative of the damages that should be assessed against New England.

New England states that the district court refused to receive evidence of licenses offered to and royalties paid by others, that such evidence is admissible, and therefore that the court committed reversible error. However, the question is not whether such evidence is admissible under Rule 408, Federal Rules of Evidence, as New England argues, but whether it was required to be admitted. A trial judge has broad authority to manage the trial and to exclude irrelevant evidence. Further, it appears that New England's expert testified without restraint on the subject of royalties offered to or paid by others.

The district court was not required to receive evidence pertinent to a determination of what royalty would be reasonable, when a royalty was correctly held not to be the measure of damages. Accord, e.g., Greenwood Ranches, Inc. v. Skie Constr. Co., 629 F.2d 518, 523 (8th Cir.1980) (district court's exclusion of testimony on "actual" loss from failure of irrigation system upheld because such proof was not relevant under district court's interpretation of state law).

The court held that the appropriate measure of damages was Webcraft's lost profits due to New England's infringing activity. Although New England argues that Webcraft failed to carry its burden of proof, reversible error has not been shown. We affirm the district court's holding that damages were properly measured by Webcraft's lost profits.

B

The accounting period covered July 7, 1974 (six years before the commencement of litigation in 1980) through February 1983, when New England ceased infringing activity. The liability phase came to trial in 1983, after extensive pre-trial procedures. In 1983 New England destroyed all of its Webcraft, carrying the burden of proving damages, attempted to fill the gaps that were due to these incomplete records. Webcraft undertook third party discovery of customers that Webcraft identified, it appears, from accounts that it had lost to New England. Based on purchase orders from such customers' files, Webcraft tried to identify which of the entries in the "job order" book were for infringing goods, and to correlate these entries with invoices or purchase orders.

manufacturing "job tickets". The "job ticket folders" contained a sample of the job and the press specification sheet which listed the press number, amounts and press counts. This was the primary and for many jobs the only source of information as to what had been manufactured and in what quantity. In response to interrogatories in 1980, New England stated that the job tickets "appear[ed] to be available". In 1981 New England's vice-president of manufacturing averred that by company policy these tickets were maintained for six years. New England also destroyed all invoices for sales prior to 1978, and some for later sales. A "job order" book remained that had entries from 1975. The parties agree that this book, and other remaining records, did not provide complete information either as to the product that was manufactured in each job, or the quantities sold.

Before the district court, New England disputed the adequacy of the evidence compiled by Webcraft to show what New England had manufactured, in what quantities, and whether the items manufactured were of infringing structure. Webcraft reports, without contradiction, that New England refused to admit that it "maintained a record of production in job book entries." New England also stated that it was unable to identify its nomenclature in the job book and on its invoices, or which product descriptions applied to infringing products.

New England argued at the accounting trial that the purchase orders that Webcraft had obtained from New England's customers, even those with New England's invoice numbers, were not a correct or probative measure of what had been manufactured and sold by New England. New England argued, and repeats on this appeal, that Webcraft's attempts to reconstruct New England's infringing activities were inadequate to meet Webcraft's burden of proving damages for infringement.

New England also argues on this appeal that the parties "reduced the level of their disagreement to about 3 million out of more than 950 million products sold," and that infringement damages must be limited accordingly. Webcraft replies that there was no agreement as to the total amount of infringement, and that "any threshold agreement reached was only as to the absolute minimum infringing quantities." The record supports Webcraft's position. In response to a request for admissions, New England had replied: "For each request that asks the defendant to admit that a copy of an invoice 'establishes a sale,' the request is denied. An invoice only establishes that an invoice was prepared, it does not establish that the goods were actually made, or shipped, or that any payment was made or received." In response to an interrogatory concerning sales to specific identified customers, New England answered: "Defendant has not yet completed the calculation by which it will formulate a contention in this regard. When and if such a contention has been formulated, this answer will be supplemented". Webcraft states that New England never responded further, despite repeated requests.

This evidence clearly showed that the incompleteness of Webcraft's proof was due to New England's destruction of its job tickets and other records, New England's refusal to admit that its own invoices established a sale or that its customers' purchase orders established a sale, and New England's lack of cooperation and refusals to respond in discovery and other...