Carter Products, Inc. v. Colgate-Palmolive Company

• Decision Date: 05 March 1963
• Docket Number: Civ. No. 6924.
• Parties: CARTER PRODUCTS, INC., Joseph G. Spitzer, and Marvin Small, Plaintiffs v. COLGATE-PALMOLIVE COMPANY, Defendant.
• Court: U.S. District Court — District of Maryland

214 F. Supp. 383

CARTER PRODUCTS, INC., Joseph G. Spitzer, and Marvin Small, Plaintiffs v. COLGATE-PALMOLIVE COMPANY, Defendant.

Civ. No. 6924.

United States District Court D. Maryland.

February 1, 1963.

Rehearing Denied March 5, 1963.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Piper & Marbury and John W. Avirett, II, Baltimore, Md., Morgan, Finnegan, Durham & Pine, Breed, Abbott & Morgan, William L. Hanaway, George B. Finnegan, Jr., Stoddard B. Colby, William D. Denson, Jerome G. Lee and Egon R. Gerard, New York City, for plaintiffs.

Venable, Baetjer & Howard and H. Vernon Eney, Baltimore, Md., Cahill, Gordon, Reindel & Ohl, Mathias F. Correa, Thomas C. Mason, and H. Richard Schumacher, New York City, and Wolfe, Hubbard, Voit & Osann and Richard R. Wolfe, Chicago, Ill., for defendant.

THOMSEN, Chief Judge.

We have now reached the final stage of this action for patent infringement and misappropriation of trade secrets brought by Carter Products, Inc., Joseph G. Spitzer and Marvin Small (plaintiffs) against Colgate-Palmolive Company (Colgate), namely, the determination and award of damages, profits, interest, fees and costs.

History of the Proceedings

In May 1955, pursuant to his opinion, 130 F.Supp. 557, Judge Coleman entered a decree in this case: he held that plaintiffs' patent (Spitzer et al., No. 2,655,480, issued October 13, 1953, for a pressurized shaving cream) was valid and had been infringed by defendant Colgate, and that Colgate had also misappropriated certain trade secrets of plaintiffs¹; he ordered that an injunction issue restraining further infringement of the patent and use of the trade secrets, and requiring Colgate to assign to plaintiffs its rights under two patent applications; he referred the case to Robert W. Williams, Esq., as Special Master, to determine and report on the damages resulting from the infringement of the patent and the damages resulting from and the profits for which Colgate should be required to account because of the misappropriation of plaintiffs' trade secrets;² he reserved for future determination the question whether increased damages should be awarded; he found the case exceptional, held that plaintiffs are entitled to receive reasonable attorneys' fees to the date of the decree, as well as their costs and taxable disbursements and directed the Master to recommend the amount of such fees.

The decree, which had been stayed by supersedeas, was affirmed with one slight modification. Colgate-Palmolive Co. v. Carter Products, 4 Cir., 230 F.2d 855, March 1956, cert. den. 352 U.S. 843, 77 S.Ct. 43, 1 L.Ed.2d 59, October 1956.

On November 19, 1956, this court issued the injunction called for by Judge Coleman's decree, as so affirmed.³ Thereafter, Colgate filed a motion in the Court of Appeals seeking to be relieved of its stipulation admitting infringement. That motion was denied, 4 Cir., 243 F.2d 163, April 1957. An effort by Colgate to have this court clarify and amplify the decree by changing the accounting period for damages and profits specified therein was likewise unavailing, 151 F.Supp. 427, May 1957.

In April 1957 plaintiffs moved for an order holding Colgate in contempt. On that motion this court found that Colgate had actively induced the sale by wholesalers and retailers of 1,600,000 cans of the adjudicated product in violation of the injunction, that any damages awarded for the sale of those cans should be trebled, and that plaintiffs were entitled to recover reasonable attorneys' fees for prosecuting that portion of their contempt motion.⁴ But this court determined that an altered product which Colgate had begun selling in July 1956 did not infringe the patent nor violate plaintiffs' trade secrets covered by the injunction. 164 F.Supp. 503, July 1958. On Carter's appeal, the decision with respect to the altered product was affirmed, 269 F.2d 299, June 1959.

The proceedings before the Master had been suspended pending the decision of the contempt proceeding, except for the filing by Colgate of certain accounting data. Thereafter, the Master heard testimony, received exhibits, and after argument rendered a careful report⁵, in which he recommended an award of $5,283,341, broken down as follows:

                The Master's Recommendations
                         I.  Infringement Damages ........................... $  814,685
                        II.  Misappropriation Damages under Par. 12(a) of
                             the Decree .....................................    271,718
                       III.  Misappropriation Damages under Par. 12(c) of the
                             Decree .........................................    184,155
                        IV.  Profits on General Sales .......................  2,760,902
                         V.  Profits on Specialized Sales ...................    203,165
                        VI.  Recommended Attorneys Fees to May 18, 1955 .....    192,631
                       VII.  To Treble Damages on 1.6 Million Cans ..........     82,800
                      VIII.  Recommendation as to Exemplary Damages .........    773,285
                                                                              __________
                                                                              $5,283,341
                                                                              ==========
                

Both sides have excepted to most of the Master's recommendations. Before considering the individual items challenged by the respective parties, however, it will be helpful to review some basic legal principles which govern this phase of the case.

Some Basic Legal Principles and Contentions of the Parties

Rule 53(e) (2), F.R.Civ.P., provides: "In an action to be tried without a jury the court shall accept the master's findings of fact unless clearly erroneous."

This is a terse statement of a principle which has been applied by the federal courts for many years. In Tilghman v. Proctor, 125 U.S. 136, 149, 8 S.Ct. 894, 901, 31 L.Ed. 664, the Supreme Court said: "We are then brought to a consideration of the exceptions taken to the master's report in matters of fact, affecting the accuracy of his conclusions in respect to the amount of those profits, gains and savings. In dealing with these exceptions, the conclusions of the master, depending upon the weighing of conflicting testimony, have every reasonable presumption in their favor, and are not to be set aside or modified unless there clearly appears to have been error or mistake on his part." As recently as March 1962 the Fourth Circuit said: "We must give great deference to the judgment of the Master in such cases as this which turn in large part upon the credibility of witnesses and on involved questions of accountancy." London v. Troitino Bros., Inc., 301 F.2d 116, 118. See also Adamson v. Gilliland, 242 U.S. 350, 353, 37 S.Ct. 169, 61 L.Ed. 356; Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240 U.S. 251, 263, 36 S.Ct. 269, 60 L.Ed. 629.

Since plaintiffs have not undertaken to prove damages based upon their own loss of sales as a result of Colgate's wrongful acts, damages for the misappropriation of the trade secrets as well as for the patent infringement may properly be allowed on the basis of a reasonable royalty.

Under the present patent statute, 35 U.S.C.A. § 284, plaintiffs are not entitled to an accounting for profits, in addition to damages, for the patent infringement.⁶ However, under the case law they are entitled to an accounting for profits as well as damages for the misappropriation of their trade secrets. Accordingly, the decree awarded: damages and an accounting for profits for Colgate's wrongful use of the 12(a) secret in Rapid Shave No. 1; damages for the patent infringement involved in the manufacture and sale of Rapid Shave No. 2 and Instant Barber Shave, and damages and an accounting for profits for Colgate's wrongful use of the 12(c) secret in those two products.

The problem caused by the interrelation between a reasonable royalty for the use of the 12(a) secret and the profits for which Colgate might be accountable because of its use of that secret in Rapid Shave No. 1 was solved by the Master's treating the royalty as an added expense in determining profits. The similar problem with respect to Rapid Shave No. 2 and Instant Barber Shave is complicated by the additional element of a royalty for the patent infringement involved in the manufacture and sale of those two products after October 13, 1953, which must be considered along with the royalty for the use of the 12(c) secret therein from the time of their introduction, about July 1953, until they were superseded by the altered products in 1956. The Master treated both royalties as expenses in determining profits. Neither side disputes that principle, but—

Colgate contends: that the royalties recommended by the Master are too high; that the damages for patent infringement should not be doubled; that the facts proved do not justify an award of profits; that the profits were improperly computed by the Master; that the Master should have accepted Colgate's computation and should have limited any award of profits to those directly derived by Colgate from the use of the particular trade secrets in specific products; and that in any event the entire profits should not be awarded, but only a portion thereof.

On the other hand, plaintiffs contend: that the damages for patent infringement should be trebled rather than doubled; that the profits were even larger than those determined by the Master; and that the Master should have included in his recommended award, either as part of the profits or as a separate item, the value of the good will which Colgate built up for its pressurized shaving cream over the years by means of continued and repeated wrongful acts.

FACTS

The evidence which was considered by the Master and which must be considered by the court at this stage of the case is to be found partly in the record of the original trial before Judge Coleman, partly in the record of the contempt proceedings, and partly in the record made during the hearings before the Master.

Many...