Grain Processing Corp. v. American Maize-Products Co.

• Decision Date: 20 February 1997
• Docket Number: 95-1507,MAIZE-PRODUCTS,Nos. 95-1506,s. 95-1506
• Citation: 108 F.3d 1392
• Parties: NOTICE: Federal Circuit Local Rule 47.6(b) states that opinions and orders which are designated as not citable as precedent shall not be employed or cited as precedent. This does not preclude assertion of issues of claim preclusion, issue preclusion, judicial estoppel, law of the case or the like based on a decision of the Court rendered in a nonprecedential opinion or order. GRAIN PROCESSING CORPORATION, Plaintiff-Appellant, v. AMERICANCOMPANY, Defendant-Cross/Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1392

108 F.3d 1392

NOTICE: Federal Circuit Local Rule 47.6(b) states that opinions and orders which are designated as not citable as precedent shall not be employed or cited as precedent. This does not preclude assertion of issues of claim preclusion, issue preclusion, judicial estoppel, law of the case or the like based on a decision of the Court rendered in a nonprecedential opinion or order.

GRAIN PROCESSING CORPORATION, Plaintiff-Appellant, v. AMERICAN MAIZE-PRODUCTS COMPANY, Defendant-Cross/Appellant.

Nos. 95-1506, 95-1507.

United States Court of Appeals, Federal Circuit.

Feb. 20, 1997.

Before ARCHER, Chief Judge, NIES, ^* Senior Circuit Judge, and BRYSON, Circuit Judge.

DECISION

ARCHER, Chief Judge.

Grain Processing Corporation (GPC) appeals the judgment of the United States District Court for the Northern District of Indiana, Grain Processing Corp. v. American Maize-Products Co., 893 F.Supp. 1386, 37 USPQ2d 1299 (N.D.Ind.1995), awarding GPC damages for American Maize-Products Company's (AMP) infringement of its U.S. Patent No. 3,849,194 (the '194 patent) based on a reasonable royalty. GPC requests that we remand to the district court with direction that damages be calculated based on lost profits. AMP, on cross-appeal, challenges the validity of the '194 patent. We vacate the award of damages and remand for reconsideration of whether lost profits should be awarded, and affirm the judgment that the patent is not invalid.

BACKGROUND

This patent infringement action involves a product known as low-dextrose malto-dextrins used as carriers in the manufacture of foods for such things as sweeteners or bulking agents. On May 12, 1981, GPC filed suit against AMP charging, for purposes of this appeal, that AMP's product known as Lo-Dex 10 (known at one time as Fro-Dex 10) infringed the '194 patent. After a number of decisions by the district court and two appeals to this court, the district court awarded GPC compensation for AMP's infringement based on a reasonable royalty of 3% for all production from May 1981 until May 1991. The court denied GPC's request for lost profits because AMP developed a new process of producing Lo-Dex 10 in 1991 that did not infringe the '194 patent. Although this process was neither developed nor available during the period of infringement, the court concluded that AMP could have developed it sooner and that it would have been a noninfringing substitute.

The district court declined to revisit the issue of validity based on the law of the case. In a prior appeal, this court affirmed the district court's judgment that the patent was not invalid.

DISCUSSION

I

We review the award of damages to determine whether it was based on an erroneous conclusion of law, clearly erroneous factual findings, or a clear error of judgment amounting to an abuse of discretion. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1543, 35 USPQ2d 1065, 1067 (Fed.Cir.1995).

GPC challenges the district court's damages award primarily on the ground that it was legal error to deny lost profits on the basis of a noninfringing substitute that did not exist during, and was not developed until after, the period of infringement. GPC argues that the issue is not whether AMP could have developed a noninfringing substitute but whether there was actually a noninfringing substitute on the market.

Rather than defend the district court's reliance on a noninfringing substitute that did not exist, AMP argues that not all of the product produced by its various processes was found to be infringing; thus, it produced a noninfringing substitute.

We agree with GPC that the court erred in refusing to award lost profits based on a noninfringing substitute that was not available at the time of infringement. The issue of noninfringing substitutes in a lost profits analysis comes from the test established in Panduit Corp. v. Stahlin Brothers Fibre Works, Inc., 575 F.2d 1152, 197 USPQ 726 (6th Cir.1978). In that case, the court required the patent holder, in order to obtain damages in the form of lost profits, to establish (1) demand for the patented product, (2) the absence of acceptable noninfringing substitutes, (3) manufacturing and marketing capability to exploit the demand, and (4) the amount of profit it would have made. Panduit, 575 F.2d at 1156, 197 USPQ at 730.

The court in Panduit established the proper time for considering the availability of noninfringing substitutes as the period of infringement. See Id., 515 F.2d at 1160-62, 197 USPQ at 732-35. On this issue, the Panduit court went further and said that switching to a noninfringing product years after the period of infringement did not establish the presence of a noninfringing substitute during the period of infringement. Id. at 1162, 197 USPQ at 735.

Likewise, in State Industries, Inc. v. Mor-Flo Industries, Inc., 883 F.2d 1573, 1579, 12 USPQ2d 1026, 1030, (Fed.Cir.1989), this court rejected an attempt to rely on a noninfringing substitute that was not available during the period of infringement. Thus, the law is clear--to be an acceptable noninfringing substitute, the product or process must have been available or on the market at the time of infringement. The district court's holding to the contrary is erroneous.

AMP's argument that, because not all of the output from its processes was found to be infringing, it actually produced a noninfringing substitute is unpersuasive. The district court found that any attempt to eliminate the infringing portion of AMP's output would have rendered the venture unprofitable. Thus, the noninfringing output is not properly a substitute.

Notwithstanding the court's error on the question of noninfringing substitutes, AMP argues that because the court found that GPC had failed to show another of the Panduit factors, the denial of lost profits is supportable on that ground. Specifically, it argues that the court's finding that "no one argue[d] that any customer cared a whit about the product's descriptive ratio" ¹ shows that GPC failed to prove demand for the patented product.

GPC counters that another finding by the district court supports an award of lost profits under Rite-Hite. According to GPC, the court's finding that AMP's "destroying roughly 50% of the Process II product and 82.5% of the Process III product would have made the venture unprofitable, and GPC would have got most of the business" amounts to a determination that "but for" AMP's infringement, GPC would have made the sales. See Rite-Hite, 56 F.3d at 1545, 35 USPQ2d at 1069 (stating that the "patentee need only show that there was a reasonable probability that the sales would have been made 'but for' the...