General Electric Company v. Sciaky Bros., Inc.

• Decision Date: 04 September 1969
• Docket Number: 18641.,No. 18640,18640
• Citation: 415 F.2d 1068
• Parties: GENERAL ELECTRIC COMPANY, Plaintiff-Appellee, v. SCIAKY BROS., INC., and Welding Research, Inc., Defendants-Appellants. GENERAL ELECTRIC COMPANY, Plaintiff-Cross-Appellant, v. SCIAKY BROS., INC., and Welding Research, Inc., Defendants-Cross-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

415 F.2d 1068 (1969)

GENERAL ELECTRIC COMPANY, Plaintiff-Appellee, v.SCIAKY BROS., INC., and Welding Research, Inc., Defendants-Appellants.

GENERAL ELECTRIC COMPANY, Plaintiff-Cross-Appellant, v.SCIAKY BROS., INC., and Welding Research, Inc., Defendants-Cross-Appellees.

Nos. 18640, 18641.

United States Court of Appeals Sixth Circuit.

September 4, 1969.

COPYRIGHT MATERIAL OMITTED

Dugald S. McDougall, Chicago, Ill., for General Electric Co., David L. Ladd, Chicago Ill., Arthur Raisch, Detroit, Mich., Melvin M. Goldenberg, Washington, D. C., on brief, Martin F. Connor, Lawrence G. Norris, Charlottesville, Va., of counsel.

Edmund C. Rogers, St. Louis, Mo., for Sciaky Bros., Inc. and Welding Research, Inc., Kingsland, Rogers, Ezell, Eilers & Robbins, St. Louis, Mo., on brief.

Before EDWARDS, McCREE and COMBS, Circuit Judges.

EDWARDS, Circuit Judge.

These two appeals resulted from a suit originally filed in 1957 in the United States District Court for the Eastern District of Michigan by the General Electric Company.General Electric sought a declaratory judgment establishing invalidity and General Electric's noninfringement of two patents held by Sciaky Bros., Inc., under license from Welding Research, Inc. Sciaky and Welding Research then filed a counterclaim claiming infringement of the two patents by General Electric.

Both patents in suit describe method and apparatus for converting multiple or three-phase electric power into single-phase power principally for use in welding machine circuits.The record indicates that they represented an important development in welding machine manufacturing.

The early history of this case is set forth in General Electric Co. v. Sciaky Bros., Inc., 187 F.Supp. 667(E.D.Mich.1960), and this court's opinion in the appeal of the same-styled case, 304 F.2d 724(6th Cir.1962).In this latter opinion Judge (now Chief Judge) Weick for this court affirmed the District Judge in holding that Sciaky's basic patent claims were valid and that General Electric had infringed them.

The case was then remanded to the United States District Court for determination of damages.Thereupon the District Judge appointed a Special Master to hear evidence on damages and on the question of willful infringement as related to Sciaky's claim for punitive damages.The Master took extensive testimony and entered a lengthy report (including strong affirmative findings concerning willfulness on the part of General Electric) awarding $668,537.59 compensatory damages, plus interest, and $500,000 in increased damages.A successor District Judge then affirmed the Master's award.Both parties have appealed.General Electric challenges the District Court's findings on the issue of willfulness and the method utilized by the Master in calculating Sciaky's damages, as well as the amount of damages assessed.Sciaky seeks additional damages and interest, as well as an award of attorney fees.

Appellant General Electric presents two issues which it states as follows:

"(1) The Special Master and the District Court erred in holding General Electric a willful and deliberate infringer and in assessing punitive damages on that account.

"(2) The Special Master and the District Court erred in figuring the compensatory damages due Sciaky by a procedure, admittedly contrary to legal precedent, in which `overall income\' was calculated without considering fixed overhead expense.This resulted in an award far exceeding Sciaky\'s normal rate of profit, which, the law says, is the correct measure of damages for lost sales."

WILLFUL INFRINGEMENT

At the outset we observe that we believe that the "clearly erroneous" standard of review applies in this case.In Commissioner of Internal Revenue v. Duberstein, 363 U.S. 278, 80 S.Ct. 1190, 4 L.Ed.2d 1218(1960), the Supreme Court said:

"Where the trial has been by a judge without a jury, the judge\'s findings must stand unless `clearly erroneous.\'Fed.Rules Civ.Proc., 52(a).`A finding is "clearly erroneous" when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.\'United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746.The rule itself applies also to factual inferences from undisputed basic facts, id., at 394, 68 S.Ct. at page 541, as will on many occasions be presented in this area.Cf.Graver Tank & Mfg. Co. v. Linde Air Products Co., 339 U.S. 605, 609-610, 70 S.Ct. 854, 94 L.Ed. 1097."Id. at 291, 80 S.Ct. at 1200.(Emphasis added.)

There were two evidentiary hearings in this litigation — one before the District Judge in the original case, and the other before the Master, which produced the record with which this appeal is directly concerned.In both of these hearings witnesses were presented and cross-examined.And, of course, there was opportunity for presentation of other witnesses.

General Electric points out that much of the evidence of willfulness upon which Sciaky (and the Master and the District Judge) relied consisted of depositions or letters or reports.And, of course, findings based entirely on such documentary evidence have been construed as subject to closer than normal appellate scrutiny.Seagrave Corp. v. Mount, 212 F.2d 389(6th Cir.1954);A. J. Industries, Inc. v. Dayton Steel Foundry Co., 394 F.2d 357(6th Cir.1968);5 J. Moore, Federal Practice¶¶ 52.04, 53.124.

But the relating of this documentary evidence to that of the live witnesses could obviously be done best by the hearing officers who saw and heard the witnesses.The record indicates that Sciaky generally presented its own witnesses live but deposed General Electric's employees and tendered their depositions.General Electric, of course, could have but did not call these witnesses to the stand in person.If the District Judge at the original trial and the Master in the hearing on damages were favorably impressed by Sciaky's live witnesses, they had a right to weigh these impressions in the balance while dealing with the often conflicting statements contained in the documentary evidence.And in any event, as the Supreme Court pointed out in Duberstein,supra, the clearly erroneous rule, Fed. R.Civ.P. 52(a), applies to factual inferences drawn from undisputed facts.¹

Although the District Judge in the original trial did not squarely pass upon the issues of willfulness and punitive damages, he did note:

"This court finds as a fact that General Electric\'s welding patent department was put to terrific strain by its higher ups and by the trade to come up with something that would be superior to the Sciaky patent.It couldn\'t do it.At one time it thought that the three-phase to the one phase system of Sciaky would be too costly but Sciaky\'s machine proved to be cheaper, easier to install, more economical to run and in many ways superior to anything that was on the market at the time.That was when General Electric then made preparation to copy the Sciaky system practically in toto.It might even be inferred that General Electric not only deliberately knew but wilfully adopted the Sciaky system and by its guaranteeing to save its customers harmless from Sciaky it threw down the gauntlet.In other words it might easily be concluded that General Electric pirated the Sciaky patents \'708 and \'083 since each had a novel manner of controlling the three-phase welder with the old transformer power circuit, while Sciaky \'083 presented an entirely new principle of three-phase welding.But, of course, we make no such direct charge or conclusion."General Electric Co. v. Sciaky Bros., Inc., 187 F.Supp. 667, 678(E.D.Mich.1960).

In the second trial the Master entered the following findings as to which the successor District Judge found "adequate basis in the record to support the master's finding of wilful infringement":

"50.The Master finds that General Electric wilfully and deliberately infringed Sciaky\'s patents in suit, and for that reason the damages to be paid to Sciaky by General Electric should be increased.

"51.The Master finds that General Electric\'s welding patent department was put to terrific strain by its higher-ups and by the trade to come up with something that would be superior to the Sciaky patents.It couldn\'t do it.At one time it thought that the three phase to the one phase system of Sciaky would be too costly but Sciaky\'s machine proved to be cheaper, easier to install, more economical to run and in many ways superior to anything that was on the market at the time.That was when General Electric then made preparation to copy the Sciaky system practically in toto.General Electric not only deliberately knew but wilfully adopted the Sciaky system and by its guaranteeing to save its customers harmless from Sciaky, even before it had sold a single control, threw down the gauntlet.It is clear that General Electric pirated the Sciaky patents in suit since each had a novel manner of controlling the three phase welder with the old transformer power circuit while Sciaky\'s \'083 presented an entirely new principle of three phase welding.These are some of the reasons why the Master finds that General Electric is a wilful and deliberate infringer.

"52.The Master finds that the opinion given by the General Electric patent department to its interested personnel, stating General Electric had the right to copy the Sciaky patented machine, was not a sincere one.That it was given even though both the General Electric patent department as well as its searching department in Washington admitted that Sciaky would be able to obtain a patent or patents on its inventions.The General Electric patent department relied on prior art, which its Washington associate characterized as being of little value.The General Electric patent department submitted its opinion to the patent department of General Electric English affiliate, and was warned that

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