Micro Chemical, Inc. v. Lextron, Inc.

• Decision Date: 29 January 2003
• Docket Number: No. 02-1121.,02-1121.
• Citation: 318 F.3d 1119
• Parties: MICRO CHEMICAL, INC., Plaintiff-Appellant, v. LEXTRON, INC. (formerly known as Great Plains Chemical Co., Inc.), Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1119

318 F.3d 1119

MICRO CHEMICAL, INC., Plaintiff-Appellant, v. LEXTRON, INC. (formerly known as Great Plains Chemical Co., Inc.), Defendant-Appellee.

No. 02-1121.

United States Court of Appeals, Federal Circuit.

January 29, 2003.

Rehearing Denied March 21, 2003.

Gregory A. Castanias, Jones, Day, Reavis & Pogue, of Washington, DC, argued for plaintiff-appellant. With him on the brief were Lawrence D. Rosenberg and Kathleen M. Laubenstein. Of counsel on the brief was John Mozola, Mullin Hoard & Brown, L.L.P., of Amarillo, TX. Of counsel was Richard P. Holme, Davis, Graham, of Denver, CO.

Dennis J. Mondolino, Morgan, Lewis & Bockius, LLP, of New York, NY, argued for defendant-appellee. With him on the brief were Michael F. Hurley and Jeffrey M. Gold. Of counsel on the brief was Jerold I. Schneider, Piper Rudnick LLP, of Washington, DC.

Before RADER, SCHALL, and BRYSON, Circuit Judges.

RADER, Circuit Judge.

This case, which spans a fourteen-year period, has been the subject of two previous appeals to this court. See Micro Chem., Inc. v. Great Plains Chem. Co., 103 F.3d 1538, 41 USPQ2d 1238 (Fed.Cir.1997) (nonobviousness); Micro Chem., Inc. v. Great Plains Chem. Co., 194 F.3d 1250, 52 USPQ2d 1258 (Fed.Cir.1999) (infringement). The present appeal involves only damages. The United States District Court for the District of Colorado granted summary judgment denying Micro Chemical, Inc. lost profits. The district court then conducted a bench trial to determine the proper reasonable royalty for Lextron, Inc.'s infringement of Micro's U.S. Patent No. 4,733,971 ('971 patent). Micro seeks review of the district court's judgment denying it lost profits and granting a reasonable royalty of only one percent. Additionally, Micro requests reassignment to a different judge should this case be remanded to the district court.

Because Lextron's Type 5 machine was not an available substitute, the district court erred in holding, on summary judgment, that Micro was not entitled to lost profits. Therefore, this court also vacates the reasonable royalty determination. This court denies Micro's request for a different judge on remand.

BACKGROUND

Animal feedlots generally add microingredients to livestock and poultry feed. Microingredients are feed additives, such as vitamins, antibiotics, hormones, medicines, and nutritional supplements, that provide a balanced diet, stimulate growth, and protect the animals from disease. One method of adding microingredients to livestock and poultry feed involves mixing dry supplements that contain microingredients into the feed. Alternatively, feedlots may spread dry microingredients directly on top of the feed in the trough (called "top dressing"). Both methods have some disadvantages in that they do not ensure uniform, accurate dosages, and they limit the feedlot's flexibility to alter dosages.

Microingredient dispensing machines overcame some of those problems. These machines measure and dispense microingredients by mixing them into a liquid carrier that is sprayed over livestock and poultry feed rations. One example of such a machine measures and dispenses microingredients by volume. Micro's '971 patent claims a machine that dispenses microingredients by weight. Weigh machines measure microingredients by weight before mixing them into the liquid carrier. This technology improved on the prior volume machine technology.

Micro and Lextron both produce microingredient weigh machines. They place their weigh machines in feedlots at no cost to the feedlots. They recoup their expenses by selling microingredients to the feedlots at an eight- to ten-percent premium. Although not required by contract to do so, feedlots generally purchase their microingredients — at premium prices — from the company that placed its machine on the feedlot. In the liability phase of this case, this court held that Lextron's Type 2 weigh machine infringed the '971 patent. Lextron used primarily the infringing Type 2 machine during the infringement period, 1988 to 1997. After Micro sued Lextron in 1988, Lextron developed its Type 3 "no mix" weigh machine. The Type 3 machine had clumping problems that limited its commercial use. By 1997, there was only one Type 3 machine still in use. After this court's 1997 opinion issued, Lextron began modifying its existing Type 2 machines into a new Type 5 weigh machine.

During the damages phase, Micro sought recovery under both lost profits and reasonable royalty theories. On summary judgment, the district court held that Micro was not entitled to lost profits under either the two-supplier or the Panduit test. Trial proceeded on a reasonable royalty damage theory, and the court awarded Micro a royalty of one percent on Lextron's microingredient sales. Micro appealed to this court, which has jurisdiction under 28 U.S.C. § 1295(a)(1) (2000).

DISCUSSION

This court reviews without deference a district court's grant of summary judgment, reapplying the same standard as the district court. Cortland Line Co. v. Orvis Co., 203 F.3d 1351, 1355-56, 53 USPQ2d 1734, 1736 (Fed.Cir.2000). Thus, this court decides for itself whether "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c). In so doing, this court draws all reasonable factual inferences in favor of the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

This court reviews a district court's damages decision for "an erroneous conclusion of law, clearly erroneous factual findings, or a clear error of judgment amounting to an abuse of discretion." Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1543-44, 35 USPQ2d 1065, 1067-68 (Fed.Cir.1995) (en banc). Availability of lost profits is a question of law reviewed without deference. Id. at 1544. This court reviews the methodology (i.e., accounting method) for damages for an abuse of discretion and the damage amount for clear error. SmithKline Diagnostics, Inc. v. Helena Labs. Corp., 926 F.2d 1161, 1164 n. 2, 17 USPQ2d 1922, 1925 n. 2 (Fed.Cir.1991).

The requested reassignment to a different trial judge on remand invokes a matter not within the exclusive jurisdiction of this court. Therefore, on this question, this court applies the law of the United States Court of Appeals for the Tenth Circuit. See Glaxo, Inc. v. Novopharm, Ltd., 110 F.3d 1562, 1572, 42 USPQ2d 1257, 1265 (Fed.Cir.1997); Atari, Inc. v. JS & A Group, Inc., 747 F.2d 1422, 1439-40, 223 USPQ 1074, 1087 (Fed.Cir.1984) (en banc). The Tenth Circuit will reassign a different judge on remand "only when there is proof of personal bias or under extreme circumstances" showing that reassignment best serves the interests of justice. Mitchell v. Maynard, 80 F.3d 1433, 1448-50 (10th Cir.1996).

I.

To recover lost profits a patentee must show that "but for" infringement it reasonably would have made the additional profits enjoyed by the infringer. King Instruments Corp. v. Perego, 65 F.3d 941, 952, 36 USPQ2d 1129, 1137 (Fed.Cir.1995). This court has not restricted patentees to any one particular method of proving "but for" causation. Id.; see also Rite-Hite, 56 F.3d at 1545. A patentee may resort to any method showing, with reasonable probability, entitlement to lost profits "but for" the infringement. King Instruments, 65 F.3d at 952; Rite-Hite, 56 F.3d at 1545. Once the patentee establishes the reasonableness of this inference, the burden shifts to the infringer to show that the inference is unreasonable for some or all of the lost profits. Rite-Hite, 56 F.3d at 1545. The Panduit and two-supplier market tests are recognized methods of showing "but for" causation. See Lam, Inc. v. Johns-Manville Corp., 718 F.2d 1056, 1065, 219 USPQ 670, 675 (Fed.Cir.1983); Rite-Hite, 56 F.3d at 1545.

A.

The district court found that Micro could not satisfy two of the four Panduit factors: demand for the patented product and absence of available, noninfringing substitutes. See Panduit Corp. v. Stahlin Bros. Fibre Works, 575 F.2d 1152, 1156 (6th Cir.1978). Specifically, the court found that Lextron's Type 5 weigh machine was an available, noninfringing substitute, and that there was no demand for Micro's patented weigh machines.

The district court deemed the Type 5 machine available under Grain Processing Corp. v. American Maize-Products Co., 185 F.3d 1341, 51 USPQ2d 1556 (Fed.Cir. 1999). In Grain Processing, this court reaffirmed its earlier precedent stating that a technology not on the market at the time of infringement can, in certain circumstances, constitute an available, noninfringing alternative. Id. at 1351-52. Grain Processing did not erect a rigid test for determining availability. Rather, it provided guidelines for when an alternative not actually "on sale" during the infringement period may have been readily "available" and thus part of the economic calculation of lost profits.

In Grain Processing, for example, the material and know-how for the alleged substitute were readily available at the time of infringement. Id. at 1354. According to the record in that case, the infringer "had all of the necessary equipment, know-how, and experience" to make the substitution at that time. Id. Therefore, the infringer was able to convert to the substitute manufacturing process in the remarkably short period of two weeks. Id. at 1346. In Grain Processing, even the ready availability of material and know-how alone did not make the substitute process "available" for the lost profits calculus. This court also weighed the fact that "the high cost of a necessary material can conceivably render a substitute `unavailable.'" Id. Similarly, this court noted that the finding that an infringer had to design or invent around the patented technology to develop an alleged substitute weighs...