Foster v. American Machine & Foundry Co.
| Decision Date | 21 February 1974 |
| Docket Number | Docket 73-1822.,No. 230,230 |
| Citation | 492 F.2d 1317 |
| Parties | Julius E. FOSTER, Plaintiff-Appellant, v. AMERICAN MACHINE & FOUNDRY CO. et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Second Circuit |
Paul J. Foley, Washington, D. C. (Belen & Foley, Washington, D. C., Robert H. Rines, Rines & Rines, Boston, Mass. and Franklin R. Weissberg, Colton, Weissberg & Yamin, New York City of counsel), for plaintiff-appellant.
William K. Kerr, New York City (Fish & Neave, Herbert F. Schwartz, Raymond C. Marier and Frank H. Gordon, Rogers, Hoge & Hills, New York City of counsel), for defendants-appellees.
Before WATERMAN and FEINBERG, Circuit Judges, and GURFEIN,* District Judge.
This is an appeal from a judgment of the District Court, Palmieri, J., confirming the Report of the Special Master, Dana M. Raymond, which awarded the plaintiff reasonable royalties for the defendants' infringement of his patent in the amount of $344,000 with interest from the date of the filing of the Master's Report, which denied injunctive relief, and which ordered a compulsory licensing on a reasonable royalty fixed by the Court in lieu thereof. The issues of validity and infringement are not before us on this appeal, having previously been resolved in Foster v. Magnetic Heating Corporation, 297 F.Supp. 512 (S.D.N.Y.1968), aff'd per curiam, 410 F.2d 12 (2 Cir.), cert. denied, 396 U.S. 829, 90 S.Ct. 82, 24 L.Ed.2d 80 (1969) ("Foster I"). For the reasons set forth below, we affirm the judgment.
Since Judge Palmieri's opinion in Foster I explicated his findings that Foster's patent was valid and infringed, it is unnecessary to repeat those findings in detail. Some discussion of the facts is necessary, however, for an understanding of the question of the relief appealed from, including the proper measure of damages.
The appellant is the inventor of Patent No. 2,882,384 entitled "Welding System." This welding system is essentially an impeding device. "It relates to the progressive continuous welding of such items as sheet metal tubes with the aid of a pair of electrodes to which is applied an alternating current voltage for the purpose of supplying electric current for heating the edges of the tube to weld the same together in a continuous process as the sheet metal is folded into tubular form and drawn past the electrodes." (297 F.Supp. at 514). The Foster patent included "use" claims as well as "apparatus" claims. The utility of the invention is found in Judge Palmieri's description of the prior art and the teachings of the patent in suit: "Welding apparatus of this character had long preceded the Foster invention, since at least the early 1920's, but was subject to spotty heating effects that produced discontinuous welding spots or beads which left the welded tube with spaced unwelded regions and stress-concentration weakened zones, which prohibited the use of such tubes in applications where they were required to pass fluids or the like or where they were to be pressurized." 297 F.Supp. at 514.
The Foster patent relates to an improvement in electrical contact resistance welding, one of several systems for longitudinal welding of pipes and tubes, which was exemplified in the Foster patent by application to low frequency welding. The key feature of the Foster patent is the use of electromagnets, positioned in the vicinity of the welding zone, for the purpose of controlling or influencing the path of the welding current.
The appellant, Julius E. Foster, the patentee and the owner of the patent in suit, is a patent solicitor and a member of the Bar of the State of New York and of the Commonwealth of Pennsylvania. He has been at the Bar for almost fifty years. He has never engaged in any manufacturing or other business connected with the patent in suit.
The principal defendant and real party in interest is appellee American Machine & Foundry Co. (AMF). Infringement of the patent has occurred as a result of the commercial activity of AMF's wholly-owned subsidiary, AMF Thermatool, Inc., and its predecessors,1 and the individual proprietors of such predecessor corporations (herein collectively referred to as Thermatool.) Thermatool manufactured welding machinery, which included as a component an impeder which embodied the process protected by Foster's patent.2
Thermatool in turn sold and leased the welding systems, both those containing the infringing impeder and those without it, to foreign and domestic mill producers for the production of longitudinally welded tubes and pipes.3 The Master found that "the value of the impeder process, as disclosed in the Foster patent, constitutes a minor but significant fraction of the total value of Thermatool's welding technology."
The primary issue on this appeal is the amount of damages to which Foster is entitled.
The Master and the District Court applied the willing licensor-willing licensee approach to hypothetical negotiations conducted in 1959-1961 between Foster, as a willing licensor, and Thermatool, as a "willing licensee who would respect the Foster patent." See Georgia-Pacific Corp. v. U.S. Plywood-Champion Papers, Inc., 446 F.2d 295 (2 Cir.), cert. denied, 404 U.S. 870, 92 S.Ct. 105, 30 L.Ed.2d 114 (1971). Based upon this approach, the Master concluded that "the parties would have agreed upon a royalty measured by the output power of Thermatool's equipment adapted for use of the Foster impeder process" of $20 per kilowatt of rated output power of Thermatool's welding equipment, "such royalty to be paid for a license to Thermatool to continue its manufacture and sale of the equipment and for a license to Thermatool's customers to use the equipment." The District Court confirmed the report of the Master.4
On this formula, the District Court entered judgment for Foster in the sum of $344,000, with interest at 6% from September 22, 1972, the date of filing of the Special Master's Report.
Foster appeals upon the ground that the judgment is grossly inadequate. He agrees that the proper measure of damages is a "reasonable royalty," but he contends that it should be based upon the extent of use of his "welding system" by the mill operators who leased the welding equipment containing the infringing impeder from Thermatool.
He says that Thermatool induced the infringement by the mill operators, and, hence, is an infringer within the meaning of 35 U.S.C. § 271(b). That subsection provides that "whoever actively induces infringement of a patent shall be liable as an infringer." Arguing that Thermatool is an "inducer" rather than a direct infringer, appellant doubles back to 35 U.S.C. § 284 and says that appellant should be awarded "in no event less than a reasonable royalty for the use made of the invention by the infringer." If the infringer is the mill operator, he argues, then the "use of the invention" must be the use made by the mill operator and that use should measure the damages. He contends that damages so measured should be imposed upon the inducer, because under § 271(b) he is liable as if he were the infringer, and because he is, in any event, a joint tortfeasor, liable in solido.
The argument, which has some surface plausibility, is without merit.
The Patent Law was amended in 1946, to provide for the award of "damages" only; and not, as had previously been the case, for an accounting of the profits of the infringer. Act of August 1, 1946 c. 726 § 1, 60 Stat. 778, 35 U.S.C. (1946 ed.) §§ 67, 70.5
We have been instructed that "the present statutory rule is that only `damages' may be recovered." Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 507, 84 S.Ct. 1526, 1543, 12 L.Ed.2d 457 (1964). As noted in Aro Mfg. Co., damages are (377 U.S. at 507, 84 S.Ct. at 1543). Damages to the patentee constitute "the difference between his pecuniary condition after the infringement, and what his condition would have been if the infringement had not occurred." Id., citing Yale Lock Mfg. Co. v. Sargent, 117 U.S. 536, 552, 6 S.Ct. 934, 29 L.Ed. 954.6
If we ask ourselves how much Foster would have made if Thermatool had not infringed, the answer must be zero. But Congress was not satisfied to leave the award, in such case, at zero. 35 U.S.C. § 284.7
Since appellant would prove no damages at all under the tests noted in Aro, supra, because he was not in business either directly or through licensees, he is entitled only to the reasonable royalty for use of the invention.
Foster urges that a "reasonable royalty" for such use by the mill operators would result in a royalty of $52,000,000 from the sale of 77 "equipments" instead of the $344,000 that was awarded. He notes that there are 69 tube mill operators who have produced $1,750,000,000 worth of longitudinally welded tube and pipe, employing the infringing Thermatool welding systems. Postulating a reasonable royalty of 3%, the appellant concludes that his damages amount to $52,000,000.
The Master found that "such damages would be in excess of the total revenues of Thermatool during the accounting period and far in excess of the revenues and profits of Thermatool in respect of its domestic sales of welding equipment." And the District Court agreed.
As indicated, the Master related the "reasonable royalty" theory to hypothetical negotiations between Foster and Thermatool, rather than between Foster and the 69 mill operators. He also disposed of the theory that such negotiations with the mill operators would have produced a greater royalty. Support for such theory would have to be found in a history evidencing willingness by the mill operators to pay a running, or throughput royalty, based on their production,...
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