ENDRESS+ HAUSER v. HAWK MEASUREMENT SYSTEMS PTY.

• Decision Date: 04 August 1995
• Docket Number: No. IP 92-440-C.,IP 92-440-C.
• Citation: 892 F. Supp. 1123
• Parties: ENDRESS + HAUSER, INC. and ENDRESS + HAUSER GmbH & Co., Plaintiffs, v. HAWK MEASUREMENT SYSTEMS PTY. LIMITED and Hawk America, Inc., Defendants.
• Court: U.S. District Court — Southern District of Indiana

892 F. Supp. 1123

ENDRESS + HAUSER, INC. and ENDRESS + HAUSER GmbH & Co., Plaintiffs, v. HAWK MEASUREMENT SYSTEMS PTY. LIMITED and Hawk America, Inc., Defendants.

No. IP 92-440-C.

United States District Court, S.D. Indiana, Indianapolis Division.

June 27, 1995.

As Amended August 4, 1995.

COPYRIGHT MATERIAL OMITTED

Donald E. Knebel, James A. Coles, Mark Janis, Dwight D. Lueck, Barnes & Thornburg, Indianapolis, IN, for plaintiffs.

Thomas G. Watkins III, Cahill, Sutton & Thomas, Phoenix, AZ, for defendants.

ENTRY REGARDING PATENT DAMAGES ISSUES

BARKER, Chief Judge.

This entry addresses the remaining damages issues tried on April 6, 1995, as the second part of the bifurcated trial. In the first part of the bifurcated trial, this Court found that Defendants Hawk Measurement Systems Pty. Limited, Inc., and Hawk America, Inc. ("Defendants" or "Hawk") literally infringed Plaintiffs Endress + Hauser, Inc.'s and Endress + Hauser GmbH's (collectively "E + H" or "Plaintiffs") patent. See Endress + Hauser, Inc. v. Hawk Measurement Systems Pty., No. IP 92-440-C, 1994 WL 736442, 32 U.S.P.Q.2d 1768 (S.D.Ind. Aug. 29, 1994). In its entry dated June 27, 1995, the Court found that the claims of the patent at issue were not invalid. Having heard and considered the evidence on damages, the Court finds that Defendants did not willfully infringe Plaintiffs' patent and that Plaintiffs are entitled to a reasonable royalty in the amount of $233,998. The Court, accordingly, enters the following findings of fact and conclusions of law.

I. FINDINGS OF FACT ON DAMAGES

1. The Court has previously found that the defendants infringed claims 43, 44 and 46 of U.S. Patent No. 4,000,650 ("the '650 Patent"). (Entry of August 31, 1994). The Court must now determine the damages which the plaintiffs suffered as a result of the defendants' infringement.

2. In this case, the Court will award the plaintiffs a reasonable royalty. The calculation of a reasonable royalty will take into account a wide variety of considerations, including: (1) the effect of selling patented items in promoting sales of non-patented items; (2) the consideration paid by E + H Germany to obtain the '650 Patent; (3) the royalty paid by another competitor, Milltronics, Inc., under the '650 Patent; (4) the plaintiffs' licensing policies; (5) the commercial relationship between the plaintiffs and defendants; and (6) the profitability of the products made under the '650 Patent.

I. Compensatory Damages.

A. Reasonable Royalty.

1. Facts Relevant to Reasonable Royalty Determination and Amount of Lump Sum.

a. Effect of selling patented items in promoting sales of non-patented items.

3. E + H Greenwood has been in the business of selling ultrasonic material level measurement systems since 1988. (Schaffer testimony).

4. E + H expected that ultrasonic material level measurement systems would be popular when it began selling those systems in 1988. (Schaffer testimony).

5. E + H's expectations proved to be true. Between 1988 and 1992, E + H sold more ultrasonic material level measurement systems each year, increasing from sales of 19 systems in 1988 to 886 systems in 1992. (Plaintiff's Ex. AX).

6. In 1991, 1992 and 1993, about 10% of E + H Greenwood's total sales were sales of ultrasonic material level measurement systems. (Schaffer testimony).

7. Sales of these systems helped to promote sales of E + H Greenwood's other products. Often a customer who bought ultrasonic level measurement systems also bought other measurement-related products from the same vendor. (Schaffer testimony).

b. Consideration paid by E + H to obtain the '650 Patent.

8. E + H first became aware of the '650 Patent in late 1987 or early 1988. (Schaffer testimony).

9. E + H considered the '650 Patent significant because it was the first patent to claim the use of digital technology for ultrasonic measurements in a closed environment. (Schaffer testimony).

10. E + H was concerned that it would infringe the '650 Patent if it sold its ultrasonic level measurement systems in the United States. Consequently, it sought to purchase the '650 Patent or to obtain a license under the '650 Patent. (Schaffer testimony).

11. On May 3, 1988, E + H Germany entered into a transaction with Berwind Corporation, then the owner of the '650 Patent, to purchase that patent, its British and Canadian counterpart patents, and a second U.S. patent. As part of that transaction, the parties executed a patent assignment agreement by which E + H Germany paid Berwind $155,000.00. (Defendant's Ex. 117).

12. Licensing the Vibratrol to Berwind in exchange for purchase of the '650 Patent was a significant element of the consideration paid to obtain the '650 Patent. The Vibratrol was tremendously profitable at the time Berwind obtained its know-how license from E + H. At the time, E + H Greenwood was obtaining gross profits on the Vibratrol of approximately 60%. (Schaffer testimony).

13. At the time that Berwind obtained its know-how license, E + H Greenwood was the only supplier of Vibratrols in the United States. When Berwind began competing with E + H Greenwood for those sales, it drove down the price at which E + H Greenwood was able to sell E + H's own Vibratrols. This downward pressure on the Vibratrol selling price was an additional cost to E + H of obtaining the '650 Patent. (Schaffer testimony).

c. Consideration paid by Milltronics to obtain a license under the '650 Patent.

14. In 1990, E + H Germany sued Federated Industries Industrial Group, Inc. ("Federated") for infringing Canadian Patent No. 1,067,992, the Canadian counterpart of the '650 Patent.

15. In order to settle this lawsuit, on March 26, 1991, Federated took a license under the '650 Patent and its Canadian counterpart. (Defendants' Ex. 118).

16. Federated is the owner of Milltronics, Inc. ("Milltronics"), which was the major seller of ultrasonic material level measurement systems in the United States in 1991. Milltronics is approximately five to six times the size of E + H Greenwood. (Schaffer testimony).

17. In return for licensing the '650 Patent, the Canadian and British counterparts of that patent, and a second United States patent to Federated, Federated paid E + H $12,500 Canadian, $12,500 U.S., and E + H paid Federated $25,000 Canadian, $25,000 U.S. and received a cross-license under U.S. Patent No. 4,596,144 (the "'144 Patent") and its Canadian counterpart. (Defendants' Ex. 118).

18. The '144 Patent, which was cross-licensed to E + H as part of the license to Federated of the '650 Patent, is an extremely valuable patent. The '144 Patent allows E + H to incorporate "bin mapping" into E + H's ultrasonic material level measurement systems. "Bin mapping" allows ultrasonic material level measurement systems to block out obstacles in the storage bin which could cause the measurement system to register false measurements. (Schaffer testimony).

19. The invention disclosed in the '144 Patent was worth hundreds of thousands of dollars to E + H and allowed E + H to incorporate a major technological innovation into its ultrasonic material level measurement systems. (Schaffer testimony).

20. Obtaining a cross-license under the '144 Patent was a key element of consideration for licensing the '650 Patent to Federated. (Schaffer testimony).

d. E + H's licensing policies.

21. E + H does not routinely license its know-how or patents to its competitors. It would rather make the sales of devices incorporating that know-how or patented technology itself. (Schaffer testimony).

22. When E + H does license its know-how or patented technology, it seeks to do so in return for a cross-license on other technology, such as the technology it obtained from Federated by licensing the '650 Patent to Federated. (Schaffer testimony).

23. If E + H did license the '650 Patent to a competitor without receiving a cross-license on additional technology in return, it would require an up-front payment in addition to a royalty based on actual sales of licensed products by that licensee. (Schaffer testimony).

24. E + H received a similar up-front payment when it cross-licensed the Vibratrol know-how to Berwind. (Plaintiff's Ex. RR).

e. Competitive relationship between E + H and Hawk.

25. Hawk America is a competitor of E + H Greenwood for sales of ultrasonic material level measurement systems in the United States. (Schaffer testimony).

26. Hawk America markets its ultrasonic material level measurement systems to the same customers as E + H Greenwood. The two competitors appear at many of the same trade shows. (Schaffer testimony).

27. When Hawk America began selling ultrasonic material level measurement systems in the United States in 1991, E + H would have anticipated that Hawk America would be a competitor of E + H Greenwood for sale of those systems. (Schaffer testimony).

28. Based on its experience in licensing the Vibratrol know-how to Bindicator, in 1991 E + H would have anticipated that competition by Hawk America for sales of ultrasonic material level measurement systems in the United States would exert downward pressure on the sales of ultrasonic material level measurement systems by E + H Greenwood, would result in lost sales of ultrasonic material level measurement systems by E + H Greenwood, and would result in lost sales of products by E + H other than ultrasonic material level measurement systems. (Schaffer testimony).

f. Profitability of products made under the '650 Patent.

1. Profitability of products made by E + H.

29. In 1990 and 1991, E + H Greenwood obtained gross profits of approximately 30% on sales of its ultrasonic material level measurement systems. This gross profit was obtained after paying the cost of the products, which were purchased from E + H Germany, domestication costs, and sales commissions. (Plaintiff's Ex. AP; Schaffer testimony).

30. In 1991, E + H anticipated that it would continue to obtain similar profits in the future. (Schaffer...