Jurgens v. CBK, Ltd., s. 94-1498

• Citation: 38 USPQ2d 1397,80 F.3d 1566
• Decision Date: 09 April 1996
• Docket Number: Nos. 94-1498,94-1521,s. 94-1498
• Parties: George W. JURGENS and Margaret M. Jurgens, Plaintiffs-Appellants, v. CBK, LTD. and CBK, Ltd., Inc., Defendants/Cross-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Page 1566

80 F.3d 1566

38 U.S.P.Q.2d 1397

George W. JURGENS and Margaret M. Jurgens, Plaintiffs-Appellants, v. CBK, LTD. and CBK, Ltd., Inc., Defendants/Cross-Appellants.

Nos. 94-1498, 94-1521.

United States Court of Appeals, Federal Circuit.

April 9, 1996.

Rehearing Denied; Suggestion for Rehearing In Banc Declined

June 20, 1996. ^*

Appealed from: U.S. District Court for the Western District of Tennessee (Jackson); Judge Todd.

Jeff H. Eckland, Faegre & Benson, Minneapolis, Minnesota, argued, for plaintiffs-appellants. With him on the brief were William L. Roberts and R. Carl Moy. Also on the brief was W.J. Michael Cody, Burch, Porter & Johnson, Memphis, Tennessee.

Albert C. Harvey, Thomason, Hendrix, Harvey, Johnson & Mitchell, Memphis, Tennessee, argued, for defendants/cross-appellants. With him on the brief were Steven B. Crain and Rebecca Adelman.

Before MAYER, Circuit Judge, COWEN, Senior Circuit Judge, and CLEVENGER, Circuit Judge.

MAYER, Circuit Judge.

George W. Jurgens and Margaret M. Jurgens appeal from a judgment of the United States District Court for the Western District of Tennessee, refusing to increase the Jurgenses' damages or award attorneys fees incurred as a result of patent infringement by CBK, Ltd. and CBK, Ltd., Inc. Jurgens v. CBK, Ltd., No. 89-1140 (W.D.Tenn. Aug. 17, 1994). CBK appeals the denial of its motions for a new trial and for judgment as a matter of law that the Jurgenses' suit was barred by issue or claim preclusion. We affirm-in-part, vacate-in-part and remand.

Background

In 1980, George W. and Margaret M. Jurgens (the Jurgenses) obtained a license to sell windsock duck decoys covered by U.S. Patent No. 4,062,141 ('141 patent) from the patentee, Jelmer Shejeflo. Sales started slowly, but grew rapidly after the Jurgenses began selling the decoys as lawn ornaments. They eventually purchased both Shejeflo's patent rights and his "North Wind" trademark.

In 1985, CBK, Ltd. and CBK, Ltd., Inc. (CBK) obtained a North Wind decoy at a trade show, and used it to create a competing decoy which CBK had manufactured in Taiwan. It began selling these decoys in 1986. Later that year, the Jurgenses sued Timothy McKasy, one of CBK's distributors, for infringement of the '141 patent in the United States District Court for the District of Minnesota. ¹ The Jurgenses also sued both CBK and McKasy for trade dress infringement under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) (1994), and for violation of Minnesota deceptive trade practices law. CBK openly defended the action against its distributor.

A jury found the patent not invalid and willfully infringed. The district court entered judgment against McKasy for both patent and trade dress infringement, and against CBK for trade dress infringement. It doubled the patent and Lanham Act damages against McKasy and trebled the Lanham Act damages against CBK. This court subsequently affirmed all but the increase of the Lanham Act damages. Jurgens v. McKasy, 927 F.2d 1552, 1564, 18 USPQ2d 1031, 1040-41 (Fed.Cir.1991).

In 1989, the Jurgenses began the present patent infringement case against CBK in the Western District of Tennessee. Prior to trial, the court denied CBK's motions for summary judgment that the Jurgenses' present infringement claims were barred by res judicata because of the Minnesota litigation and that the Jurgenses were collaterally estopped from relitigating infringement damages. The court granted the Jurgenses' motion for partial summary judgment, holding that CBK was precluded from contesting the validity of the '141 patent and its own infringement because CBK had controlled the Minnesota litigation.

The remaining issues of compensatory damages and willful infringement were tried to a jury. The Jurgenses presented evidence tending to prove that CBK did not rely on a competent opinion of counsel, but had blatantly copied a commercial embodiment of the '141 patent. CBK countered that it had relied on the opinion of its patent counsel to avoid infringement and that its actions were thus not willful or in bad faith.

The trial judge submitted the issue of willful infringement to the jury with an instruction asking "whether under all the circumstances the defendants conducted themselves willfully and in bad faith in selling their product." (Emphasis added). The Jurgenses objected to this part of the instruction claiming that it required a finding of bad faith for them to prevail on willful infringement. The judge further instructed the jury that:

CBK, if it had actual knowledge of the Jurgens' patent, had an affirmative duty to exercise due care to ensure that it would not infringe the patent before it used or sold any of the CBK wind-inflated decoys. Copying of an invention covered by a patent is evidence of willfulness.

CBK's affirmative duty included the duty to seek and obtain competent legal advice from an attorney before starting any possibly infringing activity or continuing such activity. To satisfy its duty, any advice that CBK received from its attorney, along with the other circumstances, must have been such as to justify believing, in good faith, that the Jurgens' patent would be held invalid or not infringed. The mere fact that CBK may have received advice from its attorney is not dispositive but should be considered along with the totality of the circumstances in this case.

....

Upon learning of a patent or the filing of a suit, the potential infringing party may exercise due care by continuing to manufacture and presenting what, in good faith, it believes to be legitimate defenses without risk, on that basis alone, it will be found a willful infringer.

In determining whether the defendants willfully disregarded the rights of plaintiffs, the intention of the defendants is material. You should consider any evidence that demonstrates defendants' intentions. Such evidence you may consider include--include whether defendants sought legal advice regarding the possibility of infringement and validity of the patent; was there an attempt by the defendants to develop a non-infringing device; whether defendants had knowledge of the patent and suit before entering the market; and the defendants' behavior as a party to the litigation, whether the defendants asserted defenses in bad faith.

The jury's special verdict form contained the question: "Under all the circumstances, was the defendants' conduct willful, as that term has been defined by the court?"

The jury returned its verdict awarding the Jurgenses lost profits of $537,584.93, and finding that CBK's conduct was willful. The Jurgenses moved for entry of judgment and requested an award of treble damages, attorneys fees, and prejudgment interest. The district court held that sufficient evidence supported the jury verdict and denied CBK's motions for judgment as a matter of law and for a new trial. Although upholding the finding of willful infringement, the court refused to award increased damages or attorneys fees because CBK relied upon the opinion of its patent counsel and because the Jurgenses failed to clearly mark their decoys with notice of their patent. Both sides appeal.

Discussion

Upon a finding of infringement, section 284 of the Patent Act requires the court to award "damages adequate to compensate for the infringement." 35 U.S.C. § 284 (1994). The same section also gives the court discretion to "increase the damages up to three times the amount found or assessed," but gives no criteria for doing so. Id. Absent statutory instructions, we have interpreted the increased damages part of section 284 as requiring a two step process. State Indus. v. Mor-Flo Indus., 948 F.2d 1573, 1576, 20 USPQ2d 1738, 1740 (Fed.Cir.1991). First, the fact-finder must determine whether an infringer is guilty of conduct upon which increased damages may be based. If so, the court then determines, exercising its sound discretion, whether, and to what extent, to increase the damages award given the totality of the circumstances. See Read Corp. v. Portec, Inc., 970 F.2d 816, 826-27, 23 USPQ2d 1426, 1435-36 (Fed.Cir.1992).

Because increased damages are punitive, the requisite conduct for imposing them must include some degree of culpability. Hilton Davis Chem. Co. v. Warner-Jenkinson Co., 62 F.3d 1512, 1523, 35 USPQ2d 1641, 1649 (Fed.Cir.1996)(en banc) ("Intent becomes a requirement only if and when the patent owner seeks enhanced damages or attorneys fees for willful infringement."); Beatrice Foods Co. v. New England Printing & Lithographing Co., 923 F.2d 1576, 1579, 17 USPQ2d 1553, 1555 (Fed.Cir.1991) ("[E]nhanced damages may be awarded only as a penalty for an infringer's increased culpability, namely willful infringement or bad faith. Damages cannot be enhanced to award the patentee additional compensation to rectify what the district court views as an inadequacy in the actual damages awarded."). ² An act of willful infringement satisfies this culpability requirement and is, without doubt, sufficient to meet the first requirement to increase a compensatory damages award. Read Corp., 970 F.2d at 826, 23 USPQ2d at 1435; State Indus., 948 F.2d at 1576, 20 USPQ2d at 1740; S.C. Johnson & Son v. Carter-Wallace, Inc., 781 F.2d 198, 201-02, 228 USPQ 367, 369 (Fed.Cir.1986).

Increased damages also may be awarded to a party because of the bad faith of the other side. King Instruments Corp. v. Perego, 65 F.3d 941, 947, 36 USPQ2d 1129, 1133 (Fed.Cir.1995)("The Patent Act also includes enhanced damages for willful infringement or bad faith and for attorneys fees."); Hilton Davis Chem. Co., 62 F.3d at 1519, 35 USPQ2d at 1646 ("Proof of bad faith by an infringer may entitle the patent owner to enhanced damages and attorneys fees for willful infringement.... "); Yarway Corp. v. Eur-Control USA, Inc., 775 F.2d 268, 272-73, 277, 227 USPQ 352, 355, 358 (Fed.Cir.1985)("The court [concluded] that the infringement was not willful, but the result of bad faith efforts to circumvent [...