Mars, Inc. v. Coin Acceptors, Inc., No. 2007-1409.

• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit
• Writing for the Court: Linn
• Citation: 527 F.3d 1359
• Parties: MARS, INCORPORATED, Plaintiff/Counterclaim Defendant-Appellant, and Mars Electronics International, Inc., Plaintiff/Counterclaim Defendant, and M & M/Mars Incorporated, Counterclaim Defendant, v. COIN ACCEPTORS, INC., Defendant/Counterclaimant-Cross Appellant.
• Decision Date: 02 June 2008
• Docket Number: No. 2007-1436.,No. 2007-1409.

527 F.3d 1359 MARS, INCORPORATED, Plaintiff/Counterclaim Defendant-Appellant, and
Mars Electronics International, Inc., Plaintiff/Counterclaim Defendant, and
M & M/Mars Incorporated, Counterclaim Defendant,
v.
COIN ACCEPTORS, INC., Defendant/Counterclaimant-Cross Appellant. No. 2007-1409. No. 2007-1436. United States Court of Appeals, Federal Circuit. June 2, 2008. Rehearing Denied June 27, 2008.

[527 F.3d 1362]

John B. Pegram, Fish & Richardson P.C., of New York, NY, argued for plaintiff/counterclaim defendant-appellant. With him on the brief were Autumn J.S. Hwang; and Michael E. Florey and Kraig A. Jakobsen, of Minneapolis, MN.

Kenneth J. Mallin, Bryan Cave LLP, of St. Louis, MO, argued for defendant/counterclaimant-cross appellant. With him on the brief was K. Lee Marshall.

Before LINN, Circuit Judge, CLEVENGER, Senior Circuit Judge, and PROST, Circuit Judge.

LINN, Circuit Judge.

This case involves standing and damages for patent infringement. Mars Incorporated ("Mars") appeals from the judgment of the United States District Court for the District of New Jersey precluding Mars from recovering damages on a lost profits theory and denying Mars's motion to amend its complaint to add its subsidiary as a co-plaintiff in its infringement action against Coin Acceptors, Inc. ("Coinco"). Mars, Inc. v. Coin Acceptors, Inc., No. 90-CV-0049, 2006 WL 2927239 (D.N.J. May 19, 2006) (denial of motion to amend and grant of summary judgment on lost profits theory); Mars, Inc. v. Coin Acceptors, Inc., No. 90-CV-0049, 2006 WL 2927240 (D.N.J. Aug. 7, 2006) (grant in part of motion for reconsideration); Mars, Inc. v. Coin Acceptors, Inc., No. 90-CV-0049, 2006 WL 2990371 (D.N.J. Oct. 18, 2006) (denial of motion to reconsider reconsideration). Coinco cross-appeals the district court's judgment that Mars had standing to recover damages for the period between 1996 and 2003, and it appeals the reasonable royalty rate imposed by the district court. Mars, 2006 WL 2927240; Mars, 2006 WL 2990371; Mars, Inc. v. Coin Acceptors, Inc., 513 F.Supp.2d 128 (D.N.J. 2007) (final judgment on damages).

We agree with the district court that Mars was not entitled to recover on a lost profits theory and that Mars's subsidiary lacked standing prior to 1996. We likewise find no error in the district court's determination of a reasonably royalty rate. We disagree, however, with the district court's conclusion that Mars had standing to recover damages for the period between 1996 and 2003. The court therefore affirms-in-part, reverses-in-part, and remands.

I. BACKGROUND

The patents-in-suit relate to technology used in vending machines to authenticate coins. Mars is a candy company. Mars's former subsidiary—Mars Electronics International, Inc. ("MEI")—manufactures and sells vending machine coin changers with the ability to recognize and authenticate coins electronically. Mars itself does not make and has never made vending machine coin changers.

Until 2006, MEI was a wholly owned subsidiary of Mars. Mars maintained consolidated

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financial statements that reflected the profits, losses, assets, and liabilities of all of its subsidiaries, including MEI. However, prior to 1996, MEI also had a royalty agreement with Mars, under which MEI made payments to Mars "[b]ased on gross sales value" of coin changers using Mars's patented technology. J.A. 4131 (deposition testimony of Mars's Corporate Tax Director Thomas G. Cornell). The royalty payments from MEI to Mars were structured as in a typical intellectual property licensing agreement: "even if MEI did not make a profit, [it was] still obligated to pay a royalty to Mars." Id.

On January 5, 1990, Mars brought this action against Coinco, alleging that certain Coinco products infringed U.S. Patents No. 3,870,137 ("'137 patent") and No. 4,538,719 ("'719 patent"). Mars owned both the '137 patent and the '719 patent at the time it filed suit. Coinco counterclaimed, alleging infringement of four of its own patents, and MEI (which manufactured the devices accused of infringing Coinco's patents) was added as a counterclaim defendant.

Following consolidation with a related declaratory judgment case and trial, the district court found that Coinco infringed both the '137 and the '719 patents, but that Mars did not infringe Coinco's asserted patents. On November 17, 2005, the district court entered final judgment on liability pursuant to Rule 54(b). Coinco appealed, and this court affirmed the district court's liability judgment.

The district court then began proceedings on damages. During the fifteen years that the infringement action was pending, several key events occurred that limited the damages available to Mars. First, on March 1, 1992, the '137 patent expired. Mars, 2006 WL 2927240, at *6.

Second, on March 31, 1994, Coinco introduced non-infringing alternative technology for electronic coin authentication. The parties therefore agreed that Mars was not entitled to lost profits for any lost sales after March 31, 1994.

Third, on January 1, 1996, Mars entered into a set of agreements (collectively, the "1996 Agreements") with MEI and another Mars subsidiary in the United Kingdom, which was also called Mars Electronics International ("MEI-UK"). Mars and MEI-UK had been involved in a dispute with the United Kingdom's taxing authority (at that time known as Inland Revenue), concerning the tax treatment of royalty payments from MEI-UK to its parent Mars. The 1996 Agreements resolved this dispute by transferring certain rights from Mars to MEI, and by establishing that MEI-UK would pay Mars royalties at agreed-upon diminishing rates, beginning at 5% in 1996, and gradually declining to 2% in 2004. Specifically, effective January 1, 1996, Mars transferred to MEI: "its entire interest in the Covered Intellectual Property that relates to the business of the Parties." J.A. 4942. The "Covered Intellectual Property" was defined as "those letters patent" that "the Parties have been heretofore using and exploiting, in the conduct of their businesses." J.A. 4941.

Finally, on July 1, 2003, the '719 patent expired. Mars, 2006 WL 2927240, at *6. The parties agree that Mars is not entitled to any damages for infringing sales after that date.

Mars sought the following damages: (1) lost profits, or, at minimum, a reasonable royalty for sales prior to March 31, 1994 (the period prior to Coinco's introduction of alternative technology); and (2) a reasonable royalty on Coinco's sales from April 1, 1994 until July 1, 2003 (the remaining life of the patents). Coinco acknowledged that Mars was entitled to a

527 F.3d 1364

reasonable royalty prior to January 1, 1996 (the date on which the 1996 Agreements took effect), but disputed both Mars's claim to lost profits and its claim to any damages after January 1, 1996.

Before the damages trial, Coinco moved for partial summary judgment on Mars's claim for lost profits damages. Mars, 2006 WL 2927239, at *4. Mars, conversely, moved for leave to amend its complaint to join MEI as a co-plaintiff. Id. at *1. The district court granted Coinco's summary judgment motion, reasoning that Mars itself did not lose any sales (because it did not sell coin changers itself), and that there was no evidence that profits from MEI's sales flowed inexorably to Mars. Id. at *5-6. The district court also denied Mars's motion for leave to amend as futile, reasoning that MEI lacked standing in the infringement action, because it was neither the owner nor the exclusive licensee of the patents-in-suit. Id. at *3-4.

On Mars's motion for reconsideration, the district court modified its ruling on Mars's motion for leave to amend. The court held that the 1996 Agreements assigned all of Mars's interest in the '719 patent to MEI, and it therefore reasoned that MEI—but not Mars—had standing to pursue claims from January 1996 forward. Mars, 2006 WL 2927240, at *8. But relying on our holding in Schreiber Foods, Inc. v. Beatrice Cheese, Inc., 402 F.3d 1198 (Fed. Cir.2005), the district court further held that Mars's lack of standing for the period after 1996 could "be cured by the `imminent' transfer back to Mars of the rights to the '137 and '719 patents before final judgment." Mars, 2006 WL 2927240, at *8.

On March 31, 2006, Mars and certain of its subsidiaries, including MEI, entered into a purchase agreement for the sale of certain parts of the subsidiaries' businesses to Mars. The purchase agreement was not made part of the record, either before the district court or on appeal. Mars's counsel represented to the district court that the purchase agreement did "not clearly state what [was] needed to be stated for this case," and that it would "not rear its ugly head" in the litigation. J.A. 3914. Instead, what was offered was an agreement between Mars and MEI entitled "COINCO CONFIRMATION AGREEMENT," effective June 19, 2006 ("Confirmation Agreement"). J.A. 3177. The Confirmation Agreement stated that "Mars and [MEI] do hereby acknowledge that Mars owns and retains the right to sue for past infringement of the Litigation Patents"—i.e., the '137 and '719 patents. J.A. 3177-78. Apparently treating the Confirmation Agreement as a transfer of all of MEI's rights back to Mars, the district court held that MEI now lacked standing to pursue any claim for damages, but that Mars was entitled to recover damages during the period when MEI had owned the patents.

The district court held a four-day bench trial on damages to determine the appropriate amount of a reasonable royalty. Following this trial, the district court issued a detailed oral opinion from the bench (spanning forty-six transcript pages), analyzing the fifteen Georgia-Pacific factors and concluding that a blended 7% royalty rate for the two patents was reasonable. After resolving post-trial motions, the district court applied this 7% royalty rate to Coinco sales up to July 1, 2003, resulting in damages of $14,376,062. The district court...