Gyromat Corp. v. Champion Spark Plug Co.

• Decision Date: 22 May 1984
• Docket Number: Nos. 83-1081,83-1149,s. 83-1081
• Citation: 222 USPQ 4,735 F.2d 549
• Parties: The GYROMAT CORPORATION, Appellant/Cross-Appellee, v. CHAMPION SPARK PLUG COMPANY, Appellee/Cross-Appellant. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 549

735 F.2d 549

222 U.S.P.Q. 4

The GYROMAT CORPORATION, Appellant/Cross-Appellee, v. CHAMPION SPARK PLUG COMPANY, Appellee/Cross-Appellant.

Appeal Nos. 83-1081, 83-1149.

United States Court of Appeals Federal Circuit.

May 22, 1984.

Fritz L. Schweitzer, Jr., New York City, argued for appellant/cross-appellee. With him on the brief were Michael A. Cornman, Andrew S. Langsam, New York City, and David S. Maclay, Bridgeport, Conn.

Mark Schaffer, Toledo, Ohio, argued for appellee/cross-appellant. With him on the brief were James F. Porcello, Jr. and Patrick C. Wilson, Toledo, Ohio.

Before FRIEDMAN and BALDWIN, Circuit Judges, and SKELTON, Senior Circuit Judge.

FRIEDMAN, Circuit Judge.

These are consolidated appeals from a judgment of the United States District Court for the District of Connecticut, determining the damages in a patent infringement suit. The infringer contends that the district court improperly based a portion of the damages upon the lost profits of the patentee instead of a reasonable royalty. The patentee contends that the district court erred in (1) limiting prejudgment interest to the portion of the damages based upon a reasonable royalty and denying prejudgment interest on the lost profits portion of the damages, and (2) awarding simple interest at the statutory rate rather than compound interest at the market rate. We reverse the denial of prejudgment interest on the lost profits portion of the damages, and affirm the other aspects of the judgment.

I

This case began in June 1972, when Champion Spark Plug Company (Champion) filed suit in the district court seeking a declaratory judgment that United States Patent No. 3,219,276 (the '276 patent) of Gyromat Corporation (Gyromat) was invalid and unenforceable. Gyromat responded by filing a counterclaim alleging that Champion had infringed the patent and seeking damages and injunctive relief.

The patent covers industrial paint spraying machines, in which paint is atomized and sprayed on the surface to be painted. There are various types of industrial paint sprayers currently in use, all having differing costs of operation and operating characteristics, such as the efficiency with which the paint supply is transferred to surfaces of various contours.

Claims 5 and 6 of the patent (the only claims involved in the case) define a spraying machine in which a spray nozzle is mounted on a frame that moves up and down and is supplied with paint from a stationary paint supply. They further recite a specific regulator mounted on the frame which maintains the pressure of the paint supply at the nozzle. The adjustment of the regulator is in turn controlled by a stationary pressure control valve, which permits the pressure at the nozzle to be changed without having to shut down the system. This is known as a reciprocating system.

Although all of Champion's infringing devices involved air atomizing machines, they were of two distinct types. Most of the machines were so-called short-stroke machines which contain two nozzles, mounted one above the other, which move up and down in short strokes. In a short-stroke machine, the spray nozzles are placed in positions that enable the device to paint the entire vertical area evenly, with a proper overlap in the area sprayed by the adjoining nozzle. In the other type, the so-called long-stroke machine, each frame contains a nozzle that moves up and down the entire height of the work and sprays paint on the entire vertical surface to be covered.

Before the district court, Champion conceded that if the '276 patent was valid, Champion had infringed it. After a trial, the district court held that claims 5 and 6 were invalid as obvious under 35 U.S.C. Sec. 103 (1976). The Court of Appeals for the Second Circuit reversed. Champion Spark Plug Co. v. Gyromat Corp., 603 F.2d 361, 202 USPQ 785 (1979), cert. denied, 445 U.S. 916, 100 S.Ct. 1276, 63 L.Ed.2d 600 (1980). The court held the patent valid and remanded the case to the district court.

Following the remand, the district court in 1980 enjoined Champion from infringing claims 5 or 6. It then referred the case to a special master to hear evidence and report to the court on the amount of damages and the amount of a reasonable attorney's fee, if any.

After a three-day hearing, the master rendered a lengthy report to the district court accompanied by proposed findings of fact and conclusions of law. Both parties filed exceptions to the report. In response, the master wrote a detailed letter to the court in which he answered the objections and amplified the reasons for his decision.

The district court "thoroughly reviewed this matter at each stage, both upon receipt of the original Report of the Master, and then upon receipt of the objections filed by the parties, and finally upon receipt of the Master's final report." The court "ACCEPTED, RATIFIED and AFFIRMED" the master's report, findings of fact and conclusions of law "as the ruling of this court ..." The district court entered final judgment in accordance with the master's recommendations.

The master made the following determinations:

1. Gyromat was entitled to recover its lost profits on the sale by Champion of infringing short-stroke machines. This conclusion rested upon the master's findings that demand existed for the patented product, that because Gyromat and Champion were the only two suppliers of such machines, "[n]on-infringing substitutes were not readily and reasonably available during the accounting period," that Gyromat could have made and sold the infringing systems, and that Gyromat had established the amount of profit it lost on those sales. He calculated Gyromat's lost profits on these sales at $747,944.

2. Since there was an acceptable noninfringing substitute available for the long-stroke system incorporating the patented controls, for the sale of these infringing devices Gyromat was entitled only to receive a reasonable royalty. The master set this royalty at 17.5 per cent of the selling price of the machines, for a total of $18,200.

3. Gyromat was entitled to prejudgment interest from the dates of infringement, but only for the reasonable royalty portion of the award and not on the lost profits portion. In his subsequent letter to the district court commenting on the parties' exceptions to his report, the master stated that there was "some support in the cases" Gyromat cited for Gyromat's argument that "no distinction between lost profits and reasonable royalty awards is required with respect to prejudgment interest." The master, however, concluded that his limitation of prejudgment interest to reasonable royalties "is consistent with the current weight of authority."

4. The interest rate to be applied was "the statutory interest rate in Connecticut." The master declined to award compound interest at the market rate because "there seems to be little case support" for doing so.

5. This is not an exceptional case under 35 U.S.C. Sec. 285 warranting attorney's fees and treble damages (except for sales Champion made after the injunction, with respect to which the master trebled the damages and awarded Gyromat its attorney's fees for bringing a contempt proceeding).

II

In awarding damages for lost profits, the master applied the four-part test of Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 197 USPQ 726 (6th Cir.1978), which this court implicitly approved as a method of proving damages in Central Soya v. George Hormel & Co., 723 F.2d 1573, 220 USPQ 490 (Fed.Cir.1983). The master stated that to recover under that theory Gyromat was required to establish:

1. That there be a demand for the product during the period in questions [sic].

2. That during the period there was an absence of acceptable non-infringing substitutes.

3. That Gyromat had the manufacturing and marketing capability to meet the demand for the product covered by the patent.

4. Gyromat must establish the profit it would have made.

Champion does not challenge the master's use of the Panduit test as a basis for determining the existence of lost profits. It argues only that the record does not support the master's factual findings upon which he based his award of lost profits.

Champion's brief and reply brief consist mainly of a presentation of the evidence supporting its position. Champion, however, largely ignores the contrary evidence upon which the master relied. It complains that the master improperly credited and placed too great reliance upon what it characterizes as the self-serving testimony of Gyromat's president, Mr. Wiggins. The credibility of the witnesses and the weight to be given to their testimony and the other evidence in the record, however, is a matter for the trier of the facts. We have no basis for concluding that the master improperly gave too great weight to Gyromat's evidence or too little weight to Champion's.

Based upon our review of the entire record, we cannot say that the master's factual determinations upon which he based his award of lost profits were clearly erroneous. We discuss those findings and the supporting evidence with respect to the four Panduit factors.

1. The master found that "[t]he sales of Champion and Gyromat during the period in question clearly establish the demand for the painting system covered by the patent in suit." He further pointed out that Champion was on notice from December 1965 of Gyromat's contention that Champion's control system infringed the patent in suit, and that Champion's decision to risk infringement liability indicates the value it placed on the patented features.

Champion contends that the evidence "proved that the marketability and demand for the [Champion] products are not dependent upon the presence of [the patented features]." It relies in large part on the successful sale of noninfringing systems it introduced after the injunction.

The substantial number of sales by Champion of infringing products containing the...