Georgia-Pacific Corp. v. United States Plywood Corp.

• Citation: 243 F. Supp. 500
• Parties: GEORGIA-PACIFIC CORPORATION, Plaintiff, v. UNITED STATES PLYWOOD CORPORATION, Defendant.
• Decision Date: 15 June 1965
• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

243 F. Supp. 500

GEORGIA-PACIFIC CORPORATION, Plaintiff, v. UNITED STATES PLYWOOD CORPORATION, Defendant.

United States District Court S. D. New York.

June 15, 1965.

Fish, Richardson & Neave, New York City, for plaintiff; John Vaughan Groner, Ronald F. Ball and Roger R. Phillips, New York City, of counsel.

W. O. Heilman and Raymond T. Heilpern, New York City, for defendant; Sydney Krause, Raymond T. Heilpern, James Heilman and Joel Zweibel, New York City, of counsel.

HERLANDS, District Judge.

In this final phase of a patent infringement case, the issues now before the court relate to the determination of the amount of damages to be awarded to the successful defendant, United States Plywood Corporation (USP), against the plaintiff, Georgia-Pacific Corporation (GP).

The litigation in chief involved a United States patent known as Deskey Patent No. 2,286,068, the property of USP, and embodied in a striated plywood manufactured and sold by USP as "Weldtex". The infringing article is GP's striated plywood.

The crucial question to be decided is: What is the proper measure of USP's recovery under the applicable statute, 35 U.S.C. § 284 (1958), which calls for "damages adequate to compensate for the infringement"?

This action was commenced by GP for a declaratory judgment. USP interposed a counterclaim for patent infringement. These proceedings resulted, after appeal, in a decree holding that Claim 1 of the Deskey Patent was valid; that Claims 2 to 7 of such patent were invalid for lack of invention; and that GP had infringed Claim 1. Georgia-Pacific Corp. v. United States Plywood Corp., 258 F.2d 124 (2d Cir.), cert. denied, 358 U.S. 884, 79 S.Ct. 124, 3 L.Ed.2d 112 (1958), reversing 148 F.Supp. 846 (S.D.N.Y. 1956).

The judgment on the mandate provided that USP recover of GP "the gains and profits made by the plaintiff and the damages sustained by the defendant by reason of such infringement."

The order of reference made March 17, 1959, referred the cause to a Special Master "to take testimony and make report thereon with respect to the profits and damages to which the defendant in this cause is entitled," together with findings of fact, conclusions of law and recommendations.

The Special Master properly construed the language of the judgment and of the order, under the applicable statute, as requiring him to report on the "damages adequate to compensate for the infringement." 35 U.S.C. § 284 (1958).

Proceedings before the Special Master

At the first meeting before the Special Master on April 2, 1959, USP applied orally for an order requiring GP to file an account of the profits derived from the sale of the infringing article. The Special Master directed that formal application be made, on papers and briefs. This was done. Oral argument was heard.

The Special Master ruled that an accounting for profits per se was no longer required by the statute (35 U.S.C. § 284) but that GP should file a statement which would supply the data from which its profits might be determined.

In so ruling, the Special Master held that, although an accounting for profits was no longer mandatory since the 1946 amendment (Act of Aug. 1, 1946, ch. 726, § 1, 60 Stat. 778), evidence of GP's profits should be adduced in connection with the determination of the "damages adequate to compensate for the infringement."

In compliance with a formal order of July 20, 1959 directing the filing of an account of GP's profits derived from the sale of the infringing article, GP filed a statement (referred to in the hearings before the Special Master as the "Final Report" and in this opinion as "GP's Final Report"). Thereafter, GP filed a revision of one of the exhibits (Ex. 9) contained in its said final report. The Special Master then commenced the taking of proof.

USP moved for an order of discovery of GP's books and records and for the examination of its officers, agents and employees as to the matters contained in GP's statement. The Special Master directed that GP's books and records be produced; that its officers, agents and employees be examined; and that a hearing for such purposes be held in Portland, Oregon, where GP's head office is situated.

Hearings were had in Portland, on six days in January, 1960. On January 14, 1960, the Special Master, all counsel, and other representatives of the parties journeyed to Olympia, Washington. There, at GP's plywood plants, the process of manufacture of striated plywood from inception to completion was observed.

The infringing article is striated plywood, described for purposes of this proceeding as "GP striated."

Following the Portland hearings, hearings were resumed in New York. At the close of USP's affirmative proof, USP filed a statement of its claim for damages (USP Ex. 116).

After both sides rested, briefs were directed to be submitted. USP's main brief was first filed; then GP's responding brief.

In GP's responding brief, GP contended that USP had failed to prove the fact of damage or to sustain the burden of proving apportionment, which burden GP contended rested on USP.

In view of the circumstance that GP's responding brief did not deal adequately with the issues of the fact of damage, apportionment and the burden of proof on the issue of apportionment, the Special Master reopened the hearings for the purpose of taking proof on the latter issue of apportionment. Such proof was taken.

Closing arguments were had on three days in June, 1961. The transcript before the Special Master is 3,999 pages; the exhibits are approximately 200 in number; printed briefs of counsel submitted to the Special Master cover 260 pages.

On December 1, 1961, the Special Master filed a 138-page report (referred to in this opinion as "the Report").

Proceedings subsequent to the Special Master's Report

The court has examined the Special Master's Report and the entire record before him.

In due course, pursuant to Fed.R.Civ.P. 53(e) (2), the parties filed objections to the Report; GP's were filed January 10, 1962, USP's on January 11, 1962. On April 21, 1964, the court heard an all-day argument on the objections.

Thereafter, on or about June 30, 1964, counsel filed memoranda discussing Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 84 S.Ct. 1526, 12 L.Ed.2d 457 (June 8, 1964). The last communications from counsel on this subject were received by the court on March 5, 1965 (from USP) and March 12, 1965 (from GP).

The Special Master's Services

The Special Master, Emil Weitzner, Esq., of the New York Bar, is to be commended for the scholarly and meticulously thorough manner in which he has discharged his duties. Although the court differs with the learned Special Master with respect to the controlling measure of recovery, it cannot be said that the court's opinion is apodictic.

Views of the Court of Appeals concerning the Deskey Patent

The Deskey Patent (hereinafter sometimes referred to as "USP's patent") applies only to Douglas fir plywood. Douglas fir is a wood of soft texture. Deskey taught that deep incising or grooving or striating of the surface ply or veneer of Douglas fir plywood would mask checking of the surface ply and would also mask separation of the panels at the edges. The prior art had taught the esthetic advantage of superficial incising or grooving. Deskey conceived, invented and patented the method of deep striation to combine the effect of a pleasing appearance with the functional advantages referred to: concealing checks in the surface ply and masking edge effects.

The court of appeals held Deskey's invention novel, useful, and, therefore, patentable. The court of appeals described the subject of the patent, as follows (258 F.2d at 126-127):

The general subject matter of the patent is plywood panels, which consist of an odd number of thin plies of wood veneer with the grain in the adjacent plies crossed at right angles to each other. Since veneer is weak along the grain but relatively strong across the grain, the cross plies in plywood result in a wood product of considerable strength in relation to its weight and dimensions. The more inexpensive woods, however, such as Douglas fir, present a flat, wide-grained appearance with limited appeal for use by the public when esthetic qualities are important. Further, the defendant claims that Douglas fir and like woods have two tendencies which militate against their use as decorative panels. The first is that the face ply has a tendency to expand and shrink under changing moisture conditions, resulting over a period of time in unsightly cracks between abutting panels. Also, defendant contends, because of the peculiar graining of these woods, changing moisture conditions will cause the face plies to check or open up surface cracks on the exposed panel. * * * The Deskey patent is by its disclosures directed toward reducing edge effects and checking by grooving the face ply. The result is a striated panel with multiple and alternating ribs and grooves cut to a substantial depth in the face ply but not as deep as the glue line, across the entire panel and running the length of the face ply. By striating defendant contends that stresses created by the difference in moisture content on the surface and within the ply are localized within and across the ribs, thus reducing the incidence of checking and the tendency of abutting panels to draw away from each other.

The court found utility in the invention, saying (at 127-131):

Striation of wood products is old in the art. * * * Striating or grooving was also used at a prior time for decorative effect in the plywood field. * * *

In the light of prior art, it is clear that grooving wood and related products for decorative effect both by destroying the flat grained surface and masking joints was well known and that those skilled in the art were familiar with incising as a means of graining and incising and rupturing as a means of controlling warping. * * *

Basic to the Deskey

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