BIC Leisure Products v. Windsurfing Intern., Inc.

• Decision Date: 08 April 1991
• Docket Number: No. 83 Civ. 3774(MEL).,83 Civ. 3774(MEL).
• Citation: 19 USPQ 2d 1922,761 F. Supp. 1032
• Parties: BIC LEISURE PRODUCTS, INC. and Windglider Fred Ostermann, GmbH, Plaintiffs, v. WINDSURFING INTERNATIONAL, INC., Defendant, and James R. Drake, Intervenor-Defendant.
• Court: U.S. District Court — Southern District of New York

761 F. Supp. 1032

19 USPQ 2d 1922

BIC LEISURE PRODUCTS, INC. and Windglider Fred Ostermann, GmbH, Plaintiffs, v. WINDSURFING INTERNATIONAL, INC., Defendant, and James R. Drake, Intervenor-Defendant.

No. 83 Civ. 3774(MEL).

United States District Court, S.D. New York.

April 8, 1991.

Pennie & Edmonds, New York City, for plaintiff BIC Leisure Products, Inc. (Jonathan A. Marshall, Robert M. Kunstadt, John J. Normile, and Anneliese M. Schaefer, of counsel).

Harold E. Wurst, Nilsson, Robbins, Dalgarn, Berliner, Carson & Wurst, Los Angeles, Cal., for defendant (Michael Sweedler, Darby & Darby, New York City, of counsel).

LASKER, District Judge.

In the liability phase of this case, U.S. Patent Re. 31,167 (the "reissue patent") held by Windsurfing International, Inc. ("WSI") on its sailboard design was found to be valid. BIC Leisure Products, Inc. ("BIC") was found to have infringed the WSI reissue patent and enjoined from any further infringement.¹

A successful plaintiff in a patent infringement action is entitled to "damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer...." 35 U.S.C. § 284 (1982). If a patent owner can establish with reasonable probability that he or she would have made sales made by the infringer, an award based on lost profits is appropriate. King Instrument Corp. v. Otari Corp., 767 F.2d 853, 863 (Fed.Cir. 1985), cert. denied, 475 U.S. 1016, 106 S.Ct. 1197, 89 L.Ed.2d 312 (1986). Otherwise, damages equal to a reasonable royalty must be awarded.

A bench trial to establish WSI's actual damages was held in July and August of 1990. WSI argues that the evidence at trial established total damages in the amount of $8,745,444.00 in lost profits. BIC contends that the evidence as to WSI's actual damages is too speculative to support an award based on lost profits and proposes that the court calculate damages based on a reasonable royalty of 7½%² of the net sales price of the boards sold by BIC between March 8, 1983 and September 30, 1985 which were neither in inventory nor on order as of March 8, 1983, with interest at the Treasury Bill rate. On that basis, BIC states that the proper amount of an award to WSI is $448,661, before interest.

I find that a reasonable royalty is insufficient to compensate WSI and that the evidence establishes damages to WSI in the amount of $2,851,555. WSI is also entitled to prejudgment interest at the Treasury Bill Rate from time to time.

I. CALCULATION OF LOST PROFITS

A. Damages Based on Market Share

"In order to recover lost profits a patentee must show a reasonable probability that, but for the infringement, it would have made the sales that were made by the infringer." Del Mar Avionics, Inc. v. Quinton Instrument Co., 836 F.2d 1320, 1326 (Fed.Cir.1987).

To obtain as damages the profits on sales he would have made absent the infringement, i.e., the sales made by the infringer, a patent owner must prove: (1) demand for the patented product, (2) absence of acceptable noninfringing substitutes, (3) his manufacturing and marketing capability to exploit the demand, and (4) the amount of the profit he would have made.

Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978).

1. Demand for the Patented Product

Determination of whether there was sufficient demand for WSI's product to warrant an award of damages based on lost profits requires some discussion of WSI's place in the sailboard market during the relevant time period.

The evidence at trial demonstrated that WSI's marketing efforts were based on the concept of a "One-Design Class" with a Class Association sponsoring Class regattas. The WSI "Classic" or "One-Design" sailboard accounted for approximately 80% of WSI's sales. Essentially all WSI's sailboard models were based on the original WSI hull form.³ While BIC acknowledges that during the mid to late 1970s, WSI enjoyed a relatively good reputation, BIC asserts that by 1983 (the beginning of the period for which WSI is seeking damages), the image of the WSI sailboard had suffered substantially due to increased competition from European licensees, transformation of the sport of sailboarding from One-Design to Open Class, and the failure of WSI to adopt innovative features which had been incorporated into the new Open Class sailboards.⁴

Evidence at trial traced the development of the competing "fun board" by sailboarding enthusiasts in Hawaii who found that the basic One-Design hull form which had been developed in relatively calm waters off Southern California was unsuitable for strong winds and waves. The fun board was hydrodynamically superior to the original WSI design.⁵

While European manufacturers were quick to adopt the new designs, WSI continued to produce essentially its original hull and rigging. The focus of the European market changed from the previous emphasis on One-Design racing using the WSI hulls, to what was called "open" competition in which boards of various manufacturers (as well as custom-made boards) raced against each other. In open competition, it became clear that the new designs were more versatile than the old WSI design.⁶ As the sales of funboards increased, the sales of the older designs (known as "allround" boards) fell off dramatically.

In the early 1980s, WSI's licensees began to introduce innovative products into the United States market. Many licensees used production processes such as blowmolding which produced a high volume of boards at a relatively low price, leading to price competition for WSI. In 1983, for example, HiFly (Akutec) introduced a new line of blow-molded boards which it promoted as "funboards" and put its former models on closeout.⁷

While regattas sponsored by WSI in the 1970s sparked interest in the WSI sailboard, the popularity of the WSI One-Design board waned as sailboarders became conversant with the developments that had been pioneered by the Hawaiians and brought to the mainland United States by the European manufacturers.⁸ WSI's image began slipping in the 1980s because it was not changing its models to keep up with the market.⁹

BIC maintains that, in light of the events described above, there is no reasonable probability that WSI would have sold its market share of BIC's sales and that the evidence compels the conclusion that absent BIC, fewer boards would have been sold overall, and BIC's sales would have been made by WSI licensees who were competing head-to-head with BIC in the entry-level market.

BIC argues that the presence of WSI's licensees in the market prevents WSI from proving damages based on lost profits. While BIC acknowledges that the existence of a two-player market is not an absolute prerequisite to the recovery of lost profits, BIC stresses that lost profits recovery in a multi-player market is appropriate only when the patentee can demonstrate clearly its ability to have achieved the sales made by the infringer. BIC argues that in light of the fact that WSI granted licenses under its patent to more than ten manufacturers in the United States and those licensees acquired over 50% of the domestic market by 1984, it is not reasonable to conclude that WSI rather than its licensees would have sold additional sailboards had BIC not been in the market. BIC points out that WSI's licensees, such as Coleman and HiFly, sold products more like BIC's in terms of features, performance and price and employed similar distribution channels.

BIC argues that given the many aspects in which various sailboards makes and models available during the relevant period differed, WSI has not established a demand for its particular product. BIC maintains that the evidence proves that demand for WSI's product was declining sharply because the products manufactured by its licensees were surpassing it in features, performance and price. BIC's expert, Dr. Bockstael, testified that it was quite unlikely that WSI would have achieved its market share percentage of BIC's sales.¹⁰

BIC asserts that had a reasonable probability existed that WSI could have made a portion of BIC's sales absent the infringement, WSI's sales should have increased after BIC was enjoined, but in fact, WSI's sales did not increase. By contrast, Coleman-O'Brien, a WSI licensee, which had prices and distribution channels similar to BIC, experienced an increase in sales.¹¹

Although BIC has done an impressive job of marshalling evidence to explain the decline of WSI as a major player in the sailboard market, this evidence does not negate the fact that during the relevant time period, WSI controlled 29.2% of the sailboard market in 1983, 25.6% in 1984, and 13.6% in 1985. While interest in WSI's product obviously waned during that time period, it cannot be denied that WSI's product, however "obsolete," continued to appeal to a significant portion of the sailboard market. Of course it cannot be known with any degree of certainty what would have happened had BIC not been in the sailboard market during the relevant time period. Accordingly a fact finder must choose among competing assumptions, and it is certainly a reasonable assumption that had BIC not been in the market, WSI would have sold at least its pro-rata share of the sailboards sold by BIC. Moreover there is good authority for the proposition that where, as here, there are several suppliers in the market, it is appropriate to award the patentee lost profits according to its actual market share. State Industries, Inc. v. Mor-Flo Industries, Inc., 883 F.2d 1573, 1579 (Fed. Cir.1989); Beatrice Foods Co. v. New England Printing & Lithographing Co., 899 F.2d 1171, 1173 (Fed.Cir.1990). State Industries, 883 F.2d at 1579 ("eminently reasonable for the district court to infer that plaintiff could have sold its market share of defendant's infringing sales wherever the opportunity occurred.").

If WSI had picked up its pro rata share of the BIC market, the number of...