Mars, Inc. v. Coin Acceptors, Inc.

• Decision Date: 22 May 2007
• Docket Number: Civil Action No. 90-0049 (JCL).
• Citation: 513 F.Supp.2d 128
• Parties: MARS, INC., and Mars Electronics International, Inc., Plaintiffs and Counterclaim Defendants v. COIN ACCEPTORS, INC., Defendant, and Counterclaimant.
• Court: U.S. District Court — District of New Jersey

513 F.Supp.2d 128

MARS, INC., and Mars Electronics International, Inc., Plaintiffs and Counterclaim Defendants v. COIN ACCEPTORS, INC., Defendant, and Counterclaimant.

Civil Action No. 90-0049 (JCL).

United States District Court, D. New Jersey.

May 22, 2007.

Lanny Steven Kurzweil, McCarter & English, LLP, Newark, NJ, for Plaintiffs and Counterclaim Defendants.

Elizabeth J. Sher, Pitney, Hardin, Kipp & Szuch, LLP, Florham Park, NJ, Clyde A. Szuch, Pitney, Hardin, Kipp & Szuch, Morristown, NJ, for Defendant, and Counterclaimant.

OPINION RE: PREJUDGMENT INTEREST ON INFRINGEMENT DAMAGES

LIFLAND, District Judge.

I. Background

On April 20, 2007, the Court ruled that under 35 U.S.C. § 284, Plaintiff Mars, Inc. ("Mars") is entitled to $14,376,062.00 in damages for Defendant Coin Acceptors, Inc.'s ("Coinco") infringement of Mars' U.S. Patent Nos. 3,870,137 ("the '137 patent"), and 4,538,719 ("the '719 patent"). Had Mars licensed its infringed products to Coinco, the Court determined that hypothetical negotiations between the parties would have produced a reasonable royalty rate of 7 percent. When applied to Coinco's royalty base of $205,372,320.00, this rate produces the total infringement damages amount.

Mars has requested that the Court address the application of prejudgment interest to its damages award, and argues that this interest should be applied at the historical prime rate. Coinco challenges Mars' request. The Court heard oral argument on the matter on May 22, 2007. The parties' dispute raises four issues for the Court to decide: (1) whether there are grounds to deny prejudgment interest to Mars; (2) if prejudgment interest is awarded, what rate of interest should be applied?; (3) whether simple interest or compounded interest should be applied; and (4) on what date should the prejudgment interest begin to accrue? These issues will be addressed in turn.

II. Discussion

A. Whether Pre-Judgment Interest Should Be Awarded to Mars

Coinco argues first that the Court should deny Mars' request for prejudgment interest. This Court will reject this argument, and finds that Mars is entitled to some amount of prejudgment interest.

Title 35, section 284 of the United States Code states that "[u]pon finding for the claimant" in a patent infringement action, "the court shall award the claimant damages adequate to compensate for the infringement, ... together with interest and costs as fixed by the court." The United States Supreme Court has said that District Courts have discretion in deciding whether to award prejudgment interest under § 284; the law does not require "the award of prejudgment interest whenever infringement is found." General Motors Corp.. v. Devex Corp., 461 U.S. 648, 656-57, 103 S.Ct. 2058, 76 L.Ed.2d 211 (1983). However, pursuant to "Congress' overriding purpose of affording patent owners complete compensation,"

prejudgment interest should ordinarily be awarded. In the typical case an award of prejudgment interest is necessary to ensure that the patent owner is placed in as good a position as he would have been in had the infringer entered into a reasonable royalty agreement. An award of interest from the time that the royalty payments would have been received merely serves to make the patent owner whole, since his damages consist not only of the value of the royalty payments but also the forgone use of the money between the time of infringement and the date of the judgment.

Id. at 656, 103 S.Ct. 2058 (internal footnote omitted).

Coinco urges the Court to not award prejudgment interest in this case because allegedly (1) it was a close case, (2) Coinco did not cause the delay of the case's resolution, (3) Mars has already been fully compensated by the 7 percent royalty, and (4) it will result in a punitive award that detrimentally affects Coinco's business. None of these arguments have merit.

1. Close Case

Coinco claims that pre-judgment interest should be denied because of the strength of its challenge in this case. Coinco points to Justice Stevens' concurring opinion in Devex, where he suggested that "[i]n exercising its discretion to deny [prejudgment] interest in appropriate cases, the trial court may properly take into account the nature of the patent and the strength of the defendant's challenge." Id. at 658, 103 S.Ct. 2058 (Stevens, J., concurring). Justice Stevens explained that patent challenges serve the public interest of weeding out competition-stifling "worthless patents" by permitting "a more informed decision regarding the merits of a particular patent" to be made in court. Id. Therefore, Justice Stevens cautioned that district courts should not overlook "the category of cases in which an infringer, although ultimately unsuccessful in litigation, may have been sufficiently justified in its challenge to a particular patent to make it appropriate for the district court to exercise its discretion to deny prejudgment interest." Id. at 658-59, 103 S.Ct. 2058.

Coinco claims that this case was a close one because the Court reversed its original findings that Coinco did not infringe the '137 patent (June 1994), and that Mars' '719 patent was invalid (March 2002). A denial of prejudgment interest under Justice Stevens' concurring opinion in Devex, is therefore appropriate, asserts Coinco.

The Court rejects Coinco's argument. The Federal Circuit. Court of Appeals has declined to follow Justice Stevens' Devex concurrence, reasoning that the strength of an infringer's challenge is immaterial to the "`guiding consideration'" of providing "`full compensation for the patent owner's loss.'" Bio-Rad Laboratories, Inc. v. Nicolet Instrument Corp., 807 F.2d 964, 969 (Fed.Cir.1986) (quoting Chisum, Patents § 20.03[4] at 20-172 (1986)). The Federal Circuit made clear that "a district court's justification for limiting prejudgment interest `must have some relationship to the award of prejudgment interest.'" Id. at 967 (quoting Radio Steel & Mfg. Co. v. MTD Prods., 788 F.2d 1554, 1557-58 (Fed. Cir.1986)). Thus, prejudgment interest will not be denied merely because this was a close, complex, or difficult case.

2. Delay

Coinco argues that prejudgment interest should be denied because it is not at fault for the 17-year length of this case. The Court rejects this argument as well. Delay has been found to justify the denial of prejudgment interest in patent cases only "where the patent owner has been responsible for undue delay in prosecuting the lawsuit." See Devex, 461 U.S. at 657, 103 S.Ct. 2058 (emphasis added). For example, in Crystal Semiconductor Corp. v. TriTech Microelectronics Int'l, Inc., 246 F.3d 1336, 1361-62 (Fed.Cir.2001), the Federal Circuit, following Devex, affirmed a district court's denial of prejudgment interest because the "record contain[ed] sufficient evidence ... that [the patent holder's two-year] delay was self-serving and resulted in prejudice to the defendants" by "caus[ing] the damages owed ... to escalate."

Coinco does not claim that Mars delayed filing this lawsuit, or delayed its resolution once begun. Thus, Coinco's assertion that it "has acted in good faith throughout the pendency of this case to resolve these matters as expediently as possible, while preserving its rights and asserting legitimate and well-founded defenses," is irrelevant. (Coinco Opp'n Br. 7.) The simple fact that an infringement case took a long time to be resolved does not justify a denial of prejudgment interest. See, e.g., Allen Archery, Inc. v. Browning Mfg. Co., 898 F.2d 787, 791-92 (Fed.Cir.1990) (rejecting request for denial of interest based on delay because the delay was not caused by plaintiff and was "neither `undue' nor unjustified"). In Devex itself, 24 years passed between the 1956 filing of the infringement suit and the district court's imposition of royalty based damages and prejudgment interest in 1980. See Devex Corp. v. General Motors Corp., 494 F.Supp. 1369 (D.Del.1980). Nevertheless, the district court there decided that the infringer "must now be charged a premium for the additional benefit it has enjoyed from retaining the use of the royalty money over the many years since its first infringement." Id. at 1379. The Court' will not deny prejudgment interest on the basis of delay.

3. Mars Has Allegedly Already Been Fully Compensated

Coinco next argues that because the Court already concluded during its April 20, 2007 damages hearing that a 7 percent royalty rate fully compensates Mars under § 284, any further increase to this award will result in a windfall.

This argument is also meritless. As Mars correctly points out, interest is a separate matter from reasonable royalty damages; section 284 calls for damages "adequate to compensate for the infringement ... together with interest and costs as fixed by the court." (emphasis added). Thus, the royalty compensates for the infringement, and prejudgment interest compensates for a distinct loss Mars suffered: the "forgone use of the money between the time of infringement and the date of judgment." See Devex, 461 U.S. at 656, 103 S.Ct. 2058.

4. Punitive and Detrimental Affect on Coinco

Finally, Coinco argues that it is unable to pay a prejudgment interest award without great difficulty. Coinco's president, attests that an award of prejudgment interest will cause Coinco to close one of its plants, fire employees, reduce spending; reduce employee benefits, and to become less competitive in the marketplace. (See Coinco Opp'n Br., Ex. A.) Coinco claims that the full-line and can/bottling vending machine markets are severely depressed, and as a result, its "financial results also have been negatively impacted." (Id. at 13.) Coinco cites media reports about the market, but offers no data revealing its own financial state.

Mars counters by claiming that Coinco is "rich and profitable." It cites a St. Louis Business Journal report that estimates that Coinco made $200 million per year from 2003 to 2006. Mars also claims that...