Fuji Photo Film Co. Ltd. v. Jazz Photo Corp.
| Decision Date | 25 February 2003 |
| Docket Number | No. CIV. 99-2937(FSH).,CIV. 99-2937(FSH). |
| Citation | 249 F.Supp.2d 434 |
| Parties | FUJI PHOTO FILM CO. LTD., Plaintiff, v. JAZZ PHOTO CORP., Jazz Photo Hong Kong Ltd. and Jack Benun, Defendants. |
| Court | U.S. District Court — District of New Jersey |
Lawrence Rosenthal, Matthew W. Siegal, Lisa A. Jakob, Angie M. Hankins, Stroock & Stroock & Lavan LLP, New York, NY, Robert J. Rohrberger, Fox and Fox LLP, Livingston, NJ, for Plaintiff.
John Crossman, Terence D. Watson, Emma E. Harzem, Dreier & Baritz LLP, New York, NY, Jeffrey I. Kaplan, Kaplan & Gilman, LLP, Woodbridge, NJ, Constance S. Huttner, Meir Y. Blonder, Skadden, ARPS, Slate, Meagher & Flom LLP, New York, NY, Donald P. Jacobs,
Larner, Gross, Picillo, Rosenblaum, Greenberg & Sade, Short Hills, NJ, for Defendants.
This case is the second chapter of a patent infringement dispute involving patents owned by Plaintiff Fuji Photo Film Co. Ltd. ("Fuji") for disposable cameras, known as "lens-fitted film packages" or "LFFPs." Fuji and its licensees manufacture these disposable cameras for sale both in the United States and abroad. Consumers purchase the cameras, take their pictures, and deliver them to photo processors, who then remove the exposed film for development by opening a compartment that holds the film. Once the film is removed, the remaining camera shells are either discarded by the developers, sold back to the original manufacturer, or sold to collectors who then resell them to companies that "refurbish" the cameras by, among other things, reloading the cameras with new film. Defendant Jazz Photo Corp. ("Jazz Photo") and its subsidiary, Jazz Photo Hong Kong Ltd. ("Jazz Hong Kong" and, together with Jazz Photo, "Jazz") acquire these "refurbished" cameras and resell them in the United States.
Jazz was founded in 1995 by Defendant Jack Benun, who was Jazz's President, Chief Executive Officer, and sole Director until 1997, when he resigned his positions with Jazz and assumed the title of "consultant" as part of an effort to take Jazz public (Mr. Benun had previously been barred from serving as an officer or director of any publicly-traded company). Shortly after he founded Jazz, Mr. Benun twice personally approached Fuji for a license to sell its cameras. Fuji refused to grant Jazz a license. Starting in 1995 Jazz began importing and selling "refurbished" cameras covered by Fuji's patents in the United States. Jazz also imported and sold some newly-made cameras covered by Fuji's patents.1
The primary focus of this patent infringement lawsuit involves the manner in which the cameras sold by Jazz are "refurbished." 2
As discussed more extensively below, there is a significant distinction in the law of patents between "repairing" a patented item, such that its useful life is preserved, and "reconstruction" of the item, which is tantamount to making new patented product on the template of the original after its useful life is spent. The former is permissible, as the right of "repair" inheres in the rights of a purchaser under the patent laws. The latter, however, is not, as "reconstruction" of a patented product runs afoul of the patent holder's right to seek and obtain a royalty on patented items newly-made.
Thus, the key issue in the dispute between Fuji and Jazz is whether the cameras sold by Jazz are "refurbished" in such a way that they can be considered to have been permissibly "repaired" or impermissibly "reconstructed."
Chapter I-The ITC Proceeding.
Fuji began the first chapter of this dispute in 1998 by commencing a proceeding (the "ITC Proceeding") before the International Trade Commission (the "ITC" or the "Commission"). In the ITC Proceeding, Fuji sought to prevent Jazz and the twenty-five other respondents therein from importing refurbished LFFP's into the United States pursuant to Section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1337. Among other things, Fuji claimed that the refurbishment of its patented disposable cameras constituted impermissible "reconstruction," and that the importation of refurbished cameras into the United States therefore infringed fifteen of Fuji's LFFP patents.3
During the course of the ITC Proceeding, only eight of the twenty-six respondents actually appeared before the ITC. Of the remaining respondents, eight failed to respond to the complaint, and ten more failed otherwise to appear. See Jazz v. ITC, 264 F.3d at 1098. An ITC Administrative Law Judge held a hearing with the eight participating respondents—including Jazz Photo—after which he issued a detailed Final and Initial Recommended Determination ("IRD") finding that the respondents' activities constituted impermissible reconstruction.
During the administrative hearing, several respondents did not participate in meaningful discovery regarding their refurbishment processes. Id. at 1101. Others presented evidence on this issue which the ALJ found to be incomplete or noncredible. Id. Thus, at the conclusion of the ITC hearing, the precise details of the accused refurbishing processes were not entirely known. Id, Nevertheless, each of the participating respondents in the ITC Proceeding admitted to the use of eight common procedures in their refurbishment processes. Id.4 The ALJ based his finding of impermissible reconstruction on these eight common refurbishment procedures. See hi the matter of Certain Lens-Fitted Film Packages, Inv. No. 337-TA-406, IRD at 86 (Feb. 24, 1999).
Upon review of the IRD, the Commission adopted the ALJ's finding that the eight common procedures amounted to impermissible reconstruction. See In the matter of Certain Lens-Fitted Film Packages, Inv. No. 337-TA-06, n.4 (Int'l Trade Comm. June 28, 1999). The Commission issued a General Exclusion Order and Order to Cease and Desist from further infringement of Fuji's patents.
Jazz and several other respondents appealed the Commission's ruling to the Federal Circuit. On August 21, 2001, the Federal Circuit reversed the Commission's finding of infringement with respect to cameras: (1) refurbished by the eight common procedures which formed the basis of the ALJ's decision, and (2) for which Fuji's patent rights had been "exhausted by first sale in the United States." Id. at 1110— ll.5 The Federal Circuit's dual holding in Jazz v. ITC, which sets forth both the distinction between "repair" and "reconstruction" and the doctrine of patent exhaustion, is at the heart of the proceedings in this case. A detailed analysis of the Federal Circuit's decision is therefore reserved for later portions of this Opinion.
Chapter II-The Proceedings Before This Court.
Five days before the Commission issued its opinion in the ITC Proceeding, and prior to Jazz's appeal to the Federal Circuit, Fuji commenced the instant action— the second chapter of its dispute with Jazz—by filing a three-count complaint against Jazz and Mr. Benun seeking damages and injunctive relief for, inter alia, direct infringement of Fuji's patents under 35 U.S.C. § 271(a) (as to Jazz) and inducement of infringement under 35 U.S.C. § 271(b) (as to Mr. Benun). The four-year history of this litigation culminated in a five-week jury trial, which is the subject of this Opinion.
The Parties' Stipulations. As part of a mutual effort to decrease litigation costs in this case, and to avoid undue delay, the parties entered into a stipulation (the "Repair/Reconstruction Stipulation") prior to the Federal Circuit's decision in Jazz v. ITC. Pursuant to this stipulation, the parties agreed to litigate the instant case on the basis of the record in the ITC Proceeding.6 During the trial of this case, the witnesses' testimony was taken live in order to permit the jury to hear and evaluate the testimony first-hand. As to repair/reconstruction issues, however, the scope of the witnesses' live testimony was limited to the scope of their factual ITC testimony pursuant to the parties' Repair/Reconstruction Stipulation.
Prior to trial, the parties entered into an additional stipulation in which they agreed to submit to the jury a 13-question joint special verdict form (attached as an addendum hereto). The parties stipulated that the Court would: (1) determine whether the factual refurbishment processes found by the jury constituted legally permissible repair or legally impermissible reconstruction; and (2) determine the number of legally infringing cameras and apply that number mathematically to the jury's damages verdict in order to determine the total amount of damages to be awarded.
The Jury Verdict. At the conclusion of trial, the jury reached the following verdict:
• Jazz infringed Fuji's patents with respect to 39,889,850 of the 40,099,369 refurbished cameras sold by Jazz from 1995 through August 21, 2001 (*advisory*);
• Jazz infringed Fuji's patents with respect to 1,209,760 newly-made cameras sold during this period;
• Mr. Benun induced Jazz Photo's infringement with respect to 39,103,664 cameras;
• Defendants' sale of newly-made cameras was willful, but their sale of refurbished cameras was not willful;
• A reasonable royalty for Jazz's alleged infringement is 56 cents per infringing camera sold; and
• Fuji lost profits of $3,531,711.70 as a result of Jazz's sales of refurbished cameras and $112,749.63 as a result of Jazz's sales of newly-made cameras.
Pursuant to the parties' stipulation, the Court must now determine the total number of infringing cameras sold by Jazz during the relevant period (1995 through August 21, 2001) and apply that number to the jury's damages per camera verdict to determine the total amount damages to be awarded. Defendants have also moved for judgment as a matter of law pursuant to Fed.R.Civ.P. 50(b) challenging the jury's verdict on the issues of lost profits, reasonable royalty, Mr. Benun's inducement, and willful infringement. All issues are decided in this Opinion.
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