Grain Processing v. American Maize-Products

• Citation: 979 F.Supp. 1233
• Decision Date: 26 September 1997
• Docket Number: No. H81-237.,H81-237.
• Parties: GRAIN PROCESSING CORPORATION, Plaintiff, v. AMERICAN MAIZE-PRODUCTS COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Indiana

979 F.Supp. 1233

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

No. H81-237.

United States District Court, N.D. Indiana, Hammond Division.

September 26, 1997.

Geoffrey G. Gilbert, McBride Baker and Coles, Chicago, IL, for Plaintiff.

Robert L. Baechtold, Fitzpatrick, Cella, Harper and Scinto, New York, NY, for Defendant.

Opinion

EASTERBROOK, Circuit Judge.^*

American Maize Products Co. (AMP) infringed Claim 12 of U.S. Patent No. 3,849,194. A reasonable royalty for the patented product would have been 3% of sales, yielding an award of approximately $2.5 million to plaintiff Grain Products Corporation (GPC). What is now before the court, following remand from the Federal Circuit, is whether a calculation from a lost-profits perspective would produce a higher award. To avoid repetition, I assume that the reader is familiar with the two published opinions in this case: 840 F.2d 902 (Fed.Cir.1988), and 893 F.Supp. 1386 (N.D.Ind.1995).

Claim 12 of the patent (from now on, any reference to the patent is to Claim 12) covers a waxy starch hydrolysate with a "dextrose equivalent" (D.E.) between 5 and 25, and a "descriptive ratio" (D.R.) greater than "about 2". This claims one variant of a substance known as low-dextrose malto-dextrin. GPC and AMP, along with several other firms, sell such products for use in the food industry. District Judge Parsons and the Federal Circuit issued a series of opinions collectively establishing that Lo-Dex 10, one of AMP'S line of low-dextrose malto-dextrins with a D.E. of 10, infringed the patent, but that AMP's products with higher and lower D.E. values did not infringe. Judge Parsons retired before damages could be determined. After a damages trial to the bench in 1995, I concluded that AMP could have produced a non-infringing product (as it ultimately did) with a D.R. reliably less than 1.9, and that it infringed the patent only because it misunderstood which test would be used to measure the D.E. value, the denominator in the fraction that defines the D.R. value. After analyzing the production methods available to AMP during the period of infringement, I wrote: "My conclusion that AMP has carried its burden of establishing that it could have produced a non-infringing product no later than October 1979 scotches GPC's request for lost-profits damages." 893 F.Supp. at 1392. The court of appeals responded, in an unpublished order:

We agree with GPC that the [district] 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., 575 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.

Nos. 95-1506 & 95-1507 (Fed.Cir. Feb. 20, 1997), slip op. 3-4 (table entry 108 F.3d 1392).

I do not wish to be presumptuous, but it seems to me that my opinion did what the court of appeals believes ought to have been done. That is, I found as a matter of fact that a "noninfringing product" was available "no later than October 1979". The Federal Circuit did not conclude that this finding was clearly erroneous; instead it believed that there had been a legal blunder. Yet, as the court of appeals wrote, "to be an acceptable noninfringing substitute, the product or process must have been available or on the market at the time of infringement" (emphasis added). I found and reiterate (a) that noninfringing substitutes for the patented product were on the market at the time of infringement, and (b) that AMP had "available" at the critical time a process that would have ensured that its own product did not infringe the patent.

Proposition (a) is common ground between the parties and therefore was not expressly identified as a "finding": GPC itself makes a variety of low-dextrose malto-dextrins that fall outside the patent; so does AMP (this was established at an earlier stage of the case); firms other than GPC and AMP likewise do so. It is easy to make such a product: just start with a non-waxy feedstock. Customers do not care whether the feedstock contains a waxy starch or whether the D.R. of the finished product is greater than "about 2"; they care about its D.E. value. Moreover, GPC faced competition from non-infringing low-dextrose malto-dextrins that AMP made, even though its feedstock is a waxy starch. Lo-Dex 5 and Lo-Dex 15, which for many end products are substitutes for the infringing Lo-Dex 10, did not infringe. Other firms in the industry also made low-dextrose malto-dextrins that did not infringe the patent. GPC believes that A.E. Staley, one of these rivals, did infringe, though this was never established in litigation; at all events, GPC does not contend that all competing low-dextrose malto-dextrins infringed. So noninfringing substitutes were on sale. GPC did not argue otherwise at the damages trial. What it did argue is that AMP could not have made a non-infringing D.E. 10 product, that D.E. 10 malto-dextrin occupies a market apart from the D.E. 5 and D.E. 15 products, and that if AMP had dropped out of the D.E. 10 line all of its sales would have gone to GPC rather than to the other producers.

It is obvious in retrospect that my discussion of proposition (b) was not as clear as it needed to be. I set out to articulate a finding that although, until 1991, AMP did not sell a non-infringing D.E. 10 malto-dextrin, such a product was "available" in the way the Federal Circuit uses that word. AMP did not have to "invent around" the patent; all it had to do was use a glucoamylase enzyme in its production process. Until 1991 AMP had not used this enzyme, but the sole reason was economic: glucoamylase is more expensive than the alpha amylase enzyme that AMP had been using. The chemical effects of glucoamylase have been known for a long time; my opinion cites a 1967 textbook and the pre-1974 advertising of enzyme manufacturers, which touted that glucoamylase could be used to achieve the effect (breaking starch molecules in hydrolysis at the end of the chain rather than in the middle) that would reduce DP_1-6 the numerator in the fraction that yields the D.R. value. See 893 F.Supp. at 1391. By reducing the numerator while holding the denominator (the D.E. value) constant, AMP produced Lo-Dex 10 with a D.R. value reliably less than 1.9. It could have done this at any time during the period for which GPC is entitled to damages, I concluded, and did not do so only because of a legal error. AMP believed, after using the Lane-Eynon test to determine the D.E. value, that Lo-Dex 10 made by Process II and Process III did not infringe the patent; only when the Federal Circuit held in 1991 that the Schoorl test was the right benchmark did AMP recognize the need to change production processes. It was able to do so within two weeks of the Federal Circuit's decision, which for large-scale production is practically instantaneous. I did not, and do not, say that the simple fact of switching established the availability of a non-infringing substitute; my finding of availability was based on a number of subsidiary findings about the technology of enzyme-assisted starch hydrolysis that the court of appeals did not mention. To the extent the federal circuit believed that I made such a leap from the switch to earlier availability, I trust that this clarification will set things straight.^†

I am confident that the court of appeals did not mean to say that a particular product must be sold contemporaneously with the infringement to count as an "available" non-infringing substitute. Lost-profits damages are designed to give the patent holder the economic benefits it would have enjoyed had its intellectual property been respected. Aro Manufacturing Co. v. Convertible Top Replacement Co., 377 U.S. 476, 507, 84 S.Ct. 1526, 1543, 12 L.Ed.2d 457 (1964) (plurality opinion). This rule calls for a reconstruction of the way the market would have developed in the absence of infringement. Reconstruction takes account not only of substitutes actually produced but also what would have been produced, had it been economically advantageous to do so. This is the point of the Federal Circuit's statement that "to be an acceptable noninfringing substitute, the product or process must have been available or on the market at the time of infringement" (emphasis added). A product that is within a firm's existing production abilities but not on the market — in this case, Lo-Dex 10 made by Process IV (see 893 F.Supp. at 1389-90) — effectively constrains the patent holder's profits. Potential competition can be...