Kaufman Co., Inc. v. Lantech, Inc.
| Decision Date | 21 February 1991 |
| Docket Number | Nos. 89-1381,89-1406,s. 89-1381 |
| Citation | 926 F.2d 1136,17 USPQ2d 1828 |
| Parties | , 17 U.S.P.Q.2d 1828 KAUFMAN COMPANY, INC., Plaintiff/Cross-Appellant, v. LANTECH, INC., Defendant-Appellant. |
| Court | U.S. Court of Appeals — Federal Circuit |
Mark C. Schaffer, Emch, Schaffer, Schaub & Porcello Co., L.P.A., Toledo, Ohio, argued, for plaintiff, cross-appellant. With him on the brief, were Gregg W. Emch and James F. Porcello, Jr.
John S. Reed, Hirn, Reed, Harper & Eisinger, Louisville, argued, for defendant-appellant. With him on the brief, was Michael A. Valenti.
Before RICH, Circuit Judge, SMITH, Senior Circuit Judge, and RE, Chief Judge. *
This appeal concerns computation of damages for the infringement of United States Patent No. 4,302,920 (" '920 patent") which was assigned to appellant, Lantech, Inc. ("Lantech"). Erstwhile, we affirmed the judgment that appellee, Kaufman Company, Inc. ("Kaufman"), was liable for willful infringement of the '920 patent. 1
In the subsequent accounting trial, the United States District Court for the Northern District of Ohio awarded Lantech damages comprising lost profits for eight of the forty-four infringing sales, reasonable royalties on the remaining thirty-six sales and prejudgment interest at a rate of 8.94%. On appeal, we conclude that damages of lost profits should have been awarded for all forty-four infringing sales and affirm the prejudgment interest rate.
This case concerns the development of a technology called stretch wrapping. Stretch wrapping machines are used to wrap plastic film around a load of boxes stacked on a pallet to securely bind the load together. Stretch wrapping technology is designed to stretch the film beyond its point of elasticity as it is wrapped around the load. This excessive stretching makes the plastic film stronger and also reduces the quantities of plastic film required to wrap the load. Since 1970, there have been three advancements in stretch wrapping technology. They are conventional stretch wrapping, film-driven mechanical prestretch wrapping, involved here, and powered prestretch wrapping.
The first stretch wrapping devices patented and produced by Lantech since 1970 are now referred to as conventional stretch wrapping machines. The conventional method achieves stretching by utilizing a friction device to retard the release of the film from its dispenser roll. As the load revolves on a rotating pallet, the load pulls the film from the recalcitrant dispenser roll thereby stretching the film. The process continues until the load is securely wrapped.
The conventional machines were the finest available at the time of their introduction, but it was difficult to achieve optimum film stretch levels through use of the friction devices. The inconsistent force applied to the film resulted in both repeated film failures and unnecessarily high wrapping costs. Moreover, the conventional method exerted pressure on the load being wrapped, often damaging the load.
The second advancement in stretch wrapping technology was the invention of a film-driven mechanical prestretch machine. This particular technology which is the subject of the present appeal was disclosed in the '920 patent assigned to Lantech. The film-driven mechanical prestretch device has the special feature of achieving a desired stretch level before the plastic film is applied to the load. Thus, the force associated with stretching the film is not exerted on the load being wrapped, so there is no risk of damage to the load.
The third development in stretch wrapping technology was the powered
prestretch wrapping machine. Lantech patented this technology, and the enforceability of the patent is being litigated in a separate case that has no bearing on the present case at bar. Powered prestretch had the primary advantage of achieving higher stretch levels than any other process because it was "powered".
Powered prestretch was more elaborately designed, constructed and operated than film-driven prestretch machines. Therefore, powered prestretch was much more expensive to purchase and operate than film-driven prestretch machines. Film-driven prestretch and powered prestretch machines were introduced into the market at approximately the same time. However, at the time of its introduction, the powered prestretch technology was not sufficiently developed to warrant widespread acceptance in the market. Because film-driven prestretch achieved high levels of stretch in its own right, the film-driven prestretch technology was preferred in the market until the powered prestretch technology had matured.
Lantech initially marketed film-driven prestretch as "Roller Stretch" in the summer of 1980 with great success. Due to Lantech's success with film-driven
prestretch, Lantech's sales of conventional stretch wrapping machines declined drastically. The '920 patent covering film-driven prestretch did not issue to Lantech until December 1, 1981. Since the date of issuance, Kaufman, a leading competitor of Lantech, made forty-four sales which infringed on Lantech's patent rights. Kaufman ceased its infringing sales of film-driven prestretch and began marketing powered prestretch machines for two principal reasons. First, Lantech exerted legal pressure on Kaufman and its customers to stop the infringement. Second, advances in powered prestretch technology made it a desirable alternative to customers.
On December 30, 1981, one month after the '920 patent issued to Lantech, Kaufman filed a declaratory judgment action against Lantech in the United States District Court for the Northern District of Ohio alleging that the '920 patent was invalid. Lantech counterclaimed asserting that Kaufman had infringed on its patent rights. On December 16, 1986, we affirmed the conclusion of the district court that the '920 patent was not invalid and was willfully infringed. 2 Lantech was awarded double damages and prejudgment interest.
The accounting trial then proceeded in the Northern District of Ohio in August of 1988. The district court concluded that lost profit damages were warranted under 35 U.S.C. Sec. 284 3 for only eight of the forty-four infringing sales.
The district court applied the test found in Panduit Corp. v. Stahlin Brothers Fibre Works, Inc., 575 F.2d 1152, 197 USPQ 726 (6th Cir.1978), to determine if lost profits should be awarded. In denying lost profits on thirty-six infringing sales, the court found that all but one of the requisite elements were present. The court relied on the fact that Lantech failed to present evidence indicating that every infringing purchaser would not have accepted a noninfringing substitute to the film-driven prestretch technology.
For those infringing purchases that warranted lost profit damages, the court also awarded lost profits attributed to lost sales of spare parts but excluded damages for lost sales of plastic film. For the other thirty-six infringing sales, reasonable royalties were awarded at a rate of fourteen percent. Prejudgment interest was also awarded to Lantech. Initially, the prejudgment interest rate was set at 7.87% per year, but upon review the district court raised the rate to 8.94%. In sum, Lantech was awarded damages totalling $692,815.00.
Lantech has appealed to this Court and Kaufman has cross-appealed. Both parties assert that the district court erred in calculating the appropriate damages.
We must decide whether the district court applied the correct rule of law in finding that there existed acceptable noninfringing substitutes, thereby denying lost profits damages for thirty-six of the forty-four infringing sales. Because we find that the district court applied an incorrect standard of law which caused it to calculate damages that were clearly erroneous, we need not examine the reasonable royalty rate. Furthermore, we must decide whether the district court abused its discretion in setting the prejudgment interest rate.
A court shall award damages adequate to compensate the patentee for infringement, but in no event less than a reasonable royalty. 4 Generally, in determining whether the infringing sales caused Lantech to lose profits the district court must have concluded (1) that the patent owner would have made the sale but for the infringement, i.e., causation existed, and (2) that proper evidence supporting the computation of lost profits was presented at trial. 5 The only specific test approved by this Court in determining whether the infringement caused profits to be lost was introduced in Panduit, 575 F.2d at 1156, 197 USPQ at 730. 6 The Panduit test has four requirements. To obtain damages for lost profits, the patentee must prove (1) a demand for the patented product, (2) the marketing and manufacturing capability to exploit demand, (3) an absence of acceptable noninfringing substitutes, and (4) the amount of profit the patentee would have made. 7
In the trial of this case, the district court found that lost profits should not be awarded on all infringing sales because the third Panduit element was not satisfied; i.e., that Lantech failed to show that all of Kaufman's infringing customers would not have accepted a noninfringing substitute. In arriving at its decision the district court labeled the question of acceptability of noninfringing substitutes as "subjective and highly individualized".
The district court found that Lantech met its burden of proof for two customers accounting for only eight machine sales out of forty-four infringing sales. This finding was based on the fact that Lantech presented specific evidence on the absence of acceptable noninfringing substitutes only for those two customers. The district court found that Lantech did not present evidence indicating that each of the remaining individual infringing purchasers would not have accepted a...
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