Century Wrecker Corp. v. ER Buske Mfg. Co., Inc.

• Citation: 898 F. Supp. 1334
• Decision Date: 29 September 1995
• Docket Number: No. C 95-4050.,C 95-4050.
• Parties: CENTURY WRECKER CORPORATION, Plaintiff, v. E.R. BUSKE MANUFACTURING COMPANY, INC., E.R. Buske Distributing Company, and E.R. Buske, Defendants.
• Court: U.S. District Court — Northern District of West Virginia

898 F. Supp. 1334

CENTURY WRECKER CORPORATION, Plaintiff, v. E.R. BUSKE MANUFACTURING COMPANY, INC., E.R. Buske Distributing Company, and E.R. Buske, Defendants.

No. C 95-4050.

United States District Court, N.D. Iowa, Western Division.

September 25, 1995.

Order Granting in Part Motion to Reconsider September 29, 1995.

COPYRIGHT MATERIAL OMITTED

Edmund J. Sease and Daniel J. Cosgrove of Zarley, McKee, Thomte, Voorhees & Sease, Des Moines, Iowa, for plaintiff Century Wrecker.

Kent A. Herink and David A. Tank of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, Iowa, for defendants.

ORDER REGARDING MOTIONS IN LIMINE

BENNETT, District Judge.

This matter comes before the court pursuant to three motions in limine on which the court reserved ruling at the pre-trial conference held September 18, 1995. These motions are the following: (1) plaintiff's September 5, 1995, motion in limine to exclude statements of defendants' expert Yale Kramer concerning the "affordability" of a reasonable royalty (docket no. 125); (2) plaintiff's September 5, 1995, motion in limine regarding prior settlement agreements (docket no. 129); and (3) defendant's motion in limine, filed September 20, 1995, but raised at the September 18, 1995, pre-trial conference, regarding the summary judgment ruling in this matter (docket no. 160). Each of the motions in limine has been resisted, written briefs by both parties have been filed concerning each motion, and the parties offered oral arguments on each motion at the pretrial conference. The court therefore enters the following rulings on the motions in limine seriatim.

A. Testimony On "Affordability"

The first of plaintiff's motions in limine considered here seeks to bar defendants' expert Yale Kramer from testifying about what royalty defendants would have been able to "afford" on the ground that such testimony has nothing to do with what royalty is a "reasonable royalty" under 35 U.S.C. § 284. Defendants counter that plaintiff expressly sought financial information concerning defendants' financial condition in order to allow its expert to calculate a "reasonable royalty" and that plaintiff's expert, Wayne Newkirk, expressly relied on the defendants' ability to pay a royalty in determining what royalty is "reasonable" as a damages award. The court finds that the evidence plaintiff seeks to preclude is admissible.

First, the court notes that the methodology for determining a "reasonable royalty" is consigned to the district court's discretion and is reviewed only for abuse of that discretion. Wang Labs., Inc. v. Toshiba Corp., 993 F.2d 858, 869 (Fed.Cir.1993); SmithKline Diagnostics, Inc. v. Helena Labs. Corp., 926 F.2d 1161, 1164 (Fed.Cir. 1991); Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1576 (Fed.Cir. 1988). The court abuses its discretion if its methodology is the result of "clearly erroneous factual findings, legal error, or a manifest error of judgment." Wang Labs., 993 F.2d at 869; Fromson, 853 F.2d at 1577.

Turning to the entitlement to and the nature of a "reasonable royalty," a patentee is entitled to no less than a "reasonable royalty" on the infringer's sales for which the patentee has been unable to establish entitlement to lost profits. 35 U.S.C. § 284. Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1554 (Fed.Cir.1995) (in banc), cert. den., ___ U.S. ____, 116 S.Ct. 184, ___ L.Ed.2d ____ (July 24, 1995) (No. 95-136); Wang Labs., 993 F.2d at 870; Fromson, 853 F.2d at 1574 ("reasonable royalty" is "the floor below which a damage award may not fall," quoting Del Mar Avionics, Inc. v. Quinton Instrument Co., 836 F.2d 1320, 1326 (Fed.Cir. 1987)); Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1078 (Fed.Cir.1983). Courts attempting to establish a reasonable royalty determine that royalty on the basis of a "hypothetical negotiation" between the plaintiff and defendant, which establishes what royalty a willing licensor and willing licensee would have negotiated at the time the infringement began. Rite-Hite, 56 F.3d at 1554; Wang Labs., 993 F.2d at 870 ("A reasonable royalty is the amount that `a person, desiring to manufacture , use, or sell a patented article, as a business proposition, would be willing to pay as a royalty and yet be able to make , use, or sell the patented article, in the market, at a reasonable profit,'" quoting Trans-World Mfg. Corp. v. Al Nyman & Sons, Inc., 750 F.2d 1552, 1568 (Fed.Cir.1984)); Fromson, 853 F.2d at 1574; Hanson, 718 F.2d at 1078. A reasonable royalty rate need not be supported by the specific figures advanced by the parties. SmithKline, 926 F.2d at 1167.

Plaintiff appears to assert that the exclusive list of factors a court may consider in determining a reasonable royalty is that stated in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F.Supp. 1116 (S.D.N.Y. 1970), modified and aff'd, 446 F.2d 295 (2d Cir.), cert. denied, 404 U.S. 870, 92 S.Ct. 105, 30 L.Ed.2d 114 (1971). However, the court has found no decision describing the Georgia-Pacific factors as the exclusive, permissible factors for determining a reasonable royalty.

Furthermore, although the fact that an award is not based on the infringer's profits, Rite-Hite, 56 F.3d at 1555; State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1580 (Fed.Cir.1989), cert. denied, 493 U.S. 1022, 110 S.Ct. 725, 107 L.Ed.2d 744 (1990); Stickle v. Heublein, Inc., 716 F.2d 1550, 1563 (Fed.Cir.1983), or that it might be more than an infringer would have preferred to pay, Rite-Hite, 56 F.3d at 1555; TWM Mfg. Co. v. Dura Corp., 789 F.2d 895, 900 (Fed.Cir.), cert. denied, 479 U.S. 852, 107 S.Ct. 183, 93 L.Ed.2d 117 (1986), does not make the award unreasonable, the court finds that, upon a number of occasions, courts have admitted evidence of the kind plaintiff seeks to exclude here, although the weight given that evidence may be extremely low. See, e.g., Smith-Kline, 926 F.2d at 1168 (reasonable royalty must be based upon the entirety of the evidence, including parties' evidence of their financial conditions and willingness to enter into a license); Fromson, 853 F.2d at 1576 & n. 13 (infringer's actual profits relevant, but given little or no weight); Radio Steel & Mfg. Co. v. MTD Prods., Inc., 788 F.2d 1554, 1557 (Fed.Cir.1986) (evidence of infringer's low profitability admissible but given low weight); Trans-World Mfg., 750 F.2d at 1566-69 (court erred in excluding evidence of infringer's actual profits, but appellate court gave no opinion on weight to be given that evidence); Hanson, 718 F.2d at 1079-81 (evidence of infringer's low profits admissible but given little weight); Deere & Co. v. International Harvester Co., 710 F.2d 1551, 1554 and 1558 (Fed.Cir.1983) (financial prospects of infringer with and without infringing product are part of reasonable royalty calculation, as is the "prudent" business entity's "break-even" royalty rate considered in terms of the profitability of both the patentee and the infringer at the time of the infringement, as well as "all known existing economic factors" that would be considered by the parties). The low weight given the evidence of an infringer's ability or willingness to pay a particular royalty figure or the infringer's actual profits results from the fact that an infringer is not, obviously, a willing licensee, nor is the patent holder necessarily a willing licensor. Rite-Hite, 56 F.3d at 1554 n. 13; Fromson, 853 F.2d at 1575 n. 11. In the case of an infringer, some premium over a royalty that might be paid by a willing licensor may be appropriate, Fromson, 853 F.2d at 1575 n. 11 (citing Stickle v. Heublein, Inc., 716 F.2d 1550, 1563 (Fed.Cir.1983); Panduit Corp. v. Stahlin Bros. Fibre Works, 575 F.2d 1152, 1158 (6th Cir.1978); Bott v. Four Star Corp., 229 USPQ 241, 247-48, 1985 WL 6071 (E.D.Mich.1985), although there are other ways for a damage award to penalize a noninnocent, i.e., a willful, infringer. Fromson, 853 F.2d at 1576 (citing enhanced damages for "willful" infringement and attorney fees awards for an "exceptional case"). However, it is implicit in the "reasonable royalty" methodology that the infringer would be left with a reasonable profit, although the fact that, as events unfurled after the hypothetical royalty negotiations, the defendant would not actually have made a profit paying the royalty so determined is irrelevant. Hanson, 718 F.2d at 1081; see also Georgia-Pacific, 318 F.Supp. at 1122 (reasonable royalty leaves infringer a profit margin). Thus, the court finds that evidence of defendants' financial condition, profitability, or ability to pay a particular royalty figure is relevant and admissible, but such evidence may be entitled to very little weight in determining what is a "reasonable royalty."

Finally, defendants assert that plaintiff's expert on damages and royalties, Wayne Newkirk, specifically relied upon information concerning defendants' ability to pay a royalty of any given amount in coming to his conclusion about what would be a "reasonable royalty" in this case. Federal Rule of Evidence 705 imposes upon the opposing party the onus of eliciting the bases of an expert witness' opinion on cross-examination. Fed.R.Evid. 705; see also Symbol Technologies, Inc. v. Opticon, Inc., 935 F.2d 1569, 1575 (Fed.Cir.1991) ("The responsibility for challenging the factual underpinnings of the expert's testimony fell squarely on the opposing party during cross-examination," and collecting the following cases as so holding): Smith v. Ford Motor Co., 626 F.2d 784, 793 (10th Cir.1980), cert. denied, 450 U.S. 918, 101 S.Ct. 1363, 67 L.Ed.2d 344 (1981) ("'the full burden of exploration of the facts and assumptions underlying the testimony of an expert witness is squarely on the shoulders of opposing counsel's cross-examination'" (citation omitted); Bryan v. FMC Corp., John Bean Div., 566 F.2d 541, 545 (5th Cir.1978) ("rule 705 shifts to the cross-examiner the burden of eliciting the bases...