Georgia-Pacific Corp. v. US Plywood-Champion Papers Inc.

• Decision Date: 15 June 1971
• Docket Number: Dockets 35341,35444.,No. 415,416,415
• Citation: 446 F.2d 295
• Parties: GEORGIA-PACIFIC CORPORATION, Appellant, v. U. S. PLYWOOD-CHAMPION PAPERS INC., Appellee.
• Court: U.S. Court of Appeals — Second Circuit

446 F.2d 295 (1971)

GEORGIA-PACIFIC CORPORATION, Appellant, v. U. S. PLYWOOD-CHAMPION PAPERS INC., Appellee.

Nos. 415, 416, Dockets 35341, 35444.

United States Court of Appeals, Second Circuit.

Argued February 16, 1971.

Decided June 15, 1971.

Certiorari Denied October 12, 1971.

John Vaughan Groner, New York City (Fish & Neave, Ronald F. Ball, New York City, on the brief), for appellant.

Raymond T. Heilpern, New York City (Baer & McGoldrick, William D. Zabel, Heilman & Heilman, James M. Heilman, New York City, on the brief), for appellee.

Before LUMBARD, SMITH and FEINBERG, Circuit Judges.

Certiorari Denied October 12, 1971. See 92 S.Ct. 105.

FEINBERG, Circuit Judge:

Georgia-Pacific Corporation (GP) appeals from a judgment of the United States District Court for the Southern District of New York, Charles H. Tenney, J., which awarded U. S. Plywood-Champion Papers Inc. (USP) $800,000 damages for infringement of a patent plus interest at the rate of six per cent per annum from the date of last infringement, September 1, 1958. For the reasons stated below, we reduce the award to $570,000.

In the spring of 1955, GP began to market a decorative striated plywood wall panel. Acknowledging that USP held patents on this type of paneling, GP instituted an action for declaratory judgment that the three patents involved were invalid and not infringed. The United States District Court for the Southern District of New York, William B. Herlands, J., initially found the patents invalid, 148 F.Supp. 846 (1956), but this court reversed and held one of the patents (Deskey) valid and infringed. 258 F.2d 124 (2d Cir.), cert. denied, 358 U.S. 884, 79 S.Ct. 124, 3 L. Ed.2d 112 (1958). Upon remand, the case was referred to a Special Master for an accounting covering the period March 1955 to September 1958. The Master recommended that USP should be awarded GP's net profits of $655,837. After a hearing in the district court, Judge Herlands reversed the Master's ruling, holding that GP's profits did not constitute the proper measure of recovery and that damages should be computed on the basis of a reasonable royalty. 243 F.Supp. 500 (S.D.N.Y. 1965). A series of hearings on the reasonable royalty issue were subsequently held and a draft opinion was substantially completed, but Judge Herlands died before the decision was actually rendered. The case was assigned for all purposes to Judge Tenney and the parties signed a stipulation providing, inter alia,

that the court shall have the full and unlimited right to use or not to use all or any part of said draft of opinion, notes and memoranda, with or without acknowledgment of its source, as though the same were a part of the record made herein.

Judge Tenney thereafter rendered the award of $800,000 that forms the subject of this appeal. 318 F.Supp. 1116 (S.D. N.Y. 1970).

I.

The statutory authority for the district court's award was 35 U.S.C. § 284, which provides in relevant part that

the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer * * *.

The parties seem in essential agreement that the trial court correctly chose to apply the "willing buyer-willing seller" rule in determining a reasonable royalty under that section. This rule contemplates a suppositious meeting in advance of infringement between patent owner and potential infringer in order to work out a license agreement. The trial court found a wide range of factors relevant in such hypothetical negotiations and carefully considered whether there was competition between USP's product (Weldtex) and other kinds of paneling; the effect of both the cyclical popularity of specialty plywoods and the short time the patent had to run; USP's profits on sales of Weldtex and collateral sales of other products occasioned by sales of Weldtex; GP's expected profits on both striated plywood and collateral sales; the importance of the Deskey patent relative to other processes necessary for producing the plywood and Weldtex's decorative quality; and whether there were comparable prevailing royalties on either Weldtex or similar products. The trial court's crucial finding appears to have been that USP made a profit of $48.64 per thousand square feet of Weldtex sold. This led to the subsidiary finding that GP could reasonably have expected to make at least that great a profit on its infringing sales of striated plywood. On the basis of these and other findings, the court granted USP a "reasonable royalty" of $50 per thousand square feet. While we sustain all of the trial court's basic findings, we modify its ultimate conclusion as to a reasonable royalty because we think it fails to leave GP a reasonable profit on its sale of striated plywood. GP, however, attacks many of these basic findings and to those arguments we turn first.

II.

GP's first challenge is that the trial court misapplied the willing buyer-willing seller rule by placing an incorrect cut-off date on evidence respecting the commercial value of the patent. GP states that the court only allowed such evidence if it would have been known by February 1955, the time of the hypothetical negotiations, and excluded relevant factors which became known after that date.

Although GP may be correct in assuming that relevant factors occurring after the infringement begins should be considered, cf. Sinclair Refining Co. v. Jenkins Petroleum Process Co., 289 U.S. 689, 697, 53 S.Ct. 736, 77 L.Ed. 1449 (1933), it is incorrect in asserting that the trial court did not do so. The trial court itself stated that:

This Court has taken into account the modifying effect of the facts developed subsequent to 1955 and has assessed them together with all other probative evidence so far as they bear upon the reasonableness of the assumptions and expectations of the parties in their hypothetical negotiations in 1955.

318 F.Supp. at 1122. And an examination of relevant portions of the record merely reveals that the court understandably gave greater weight to those factors apparent at the time of the suppositious negotiations than to those occurring two or more years later. Such action hardly constitutes reversible error.

GP's next set of arguments concerns the trial court's alleged miscalculation of USP's profits on the patented product (Weldtex). GP claims that the trial court erred in relying on (1) unqualified USP expert witnesses whose testimony was contrary to their experience and (2) "inappropriate" USP pro forma profit statements "based on speculation and guess."

As to the qualifications of USP witnesses Raymond Heilpern and Sol Antoville with respect to their testimony concerning USP's profits on Weldtex, we note that the trial court found their testimony not persuasive and set an average profit on Weldtex that was lower than that proffered by either USP witness. 318 F.Supp. at 1128-1129. Nevertheless, since the testimony of these witnesses was given considerable weight on other issues, see id. at 1143, we briefly consider GP's attack on their qualifications. The trial court made specific findings on that issue:

Both Raymond T. Heilpern and Sol W. Antoville testified in person before Judge Herlands in behalf of USP.

The Court exercised the opportunity thus presented of questioning them. Their extensive appearance on the stand also afforded the Court ample opportunity to observe their demeanor and manner of testifying. Their professional and technical qualifications and their testimonial credibility and reliability appear to have impressed Judge Herlands, and their testimony is equally impressive to me.

Id. at 1142. The court also went on to characterize their testimony as "factually supported, authoritative, forthright, realistic, reasoned and specifically and concretely directed to the subject of striated fir plywood," id., in sharp contrast to its finding that the GP experts were "not conversant with the business considerations in the marketing of striated fir plywood * * * and did not know anything about a licensing situation realistically comparable to that presented by the present case." Id., at 1141. After consideration of the record, we see no reason to disturb these findings. See Fed.R.Civ.P. 52(a).

GP makes a number of objections to the use of USP's pro forma statements in estimating USP's profits on Weldtex. It contends that there was not enough allocated to costs because Weldtex requires a particularly high standard of face ply. The trial court made no specific finding on this issue but, in light of the existing testimony that the extra costs were unnecessary, we do not find the court's failure to allocate additional costs clearly erroneous. GP also argues that extra costs should have been allocated for advertising expenses. As noted by USP, however, the court found that Weldtex materially contributed to the sales volumes of other items, some of which were unadvertised, so USP's procedure of allocating advertising costs on the basis of a product's relative sales appears reasonable. In any event, the court's failure to add such costs is not clearly erroneous. The same holds true for the court's decision not to allocate greater costs to Weldtex on the ground that it was a "specialty" rather than a staple commodity. GP's other objections to the use of the pro forma statements are similarly without merit.

III.

GP also contends that the trial court erred in failing to give sufficient weight to a myriad of factors which GP proffered below as undercutting the value of USP's patent. A listing of the trial court's findings on these questions follows: (1) USP's arrangement with the inventor Deskey had no significant probative bearing upon the issue of a reasonable royalty (318 F.Supp. at 1137-1138); (2) USP's licenses of the Deskey patent to other mills involved circumstances so different from the USP-GP situation as to be irrelevant in determining a...