Radio Steel & Mfg. Co. v. MTD Products, Inc.

• Decision Date: 18 April 1986
• Docket Number: Nos. 85-2599,85-2627,s. 85-2599
• Citation: 229 USPQ 431,788 F.2d 1554
• Parties: RADIO STEEL & MFG. CO., Appellee/Cross-Appellant, v. MTD PRODUCTS, INC., Appellant/Cross-Appellee. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 1554

788 F.2d 1554

229 U.S.P.Q. 431

RADIO STEEL & MFG. CO., Appellee/Cross-Appellant, v. MTD PRODUCTS, INC., Appellant/Cross-Appellee.

Appeal Nos. 85-2599, 85-2627.

United States Court of Appeals Federal Circuit.

April 18, 1986.

Charles R. Rust, Woodling, Krost, Rust & Hochberg, Cleveland, Ohio, for appellant/cross-appellee.

Robert W. Slater, McDougall, Hersh & Scott, Chicago, Ill., for appellee/cross-appellant. With him on brief was James R. Ryther. Thomas E. Fisher and Daniel J. Sammon, Watts, Hoffman, Fisher & Heinke Co., L.P.A., Cleveland, Ohio, of counsel.

Before FRIEDMAN, BALDWIN, and NEWMAN, Circuit Judges.

FRIEDMAN, Circuit Judge.

These are an appeal and a cross-appeal from a judgment of the United States District Court for the Northern District of Ohio, awarding damages in the accounting phase of a patent infringement suit. The infringer contends that the damages were excessive. The patentee contends that the damages were inadequate because the district court should have held that the infringement was willful and awarded enhanced damages and attorney fees. We affirm.

I

The case involves U.S. Patent No. 3,282,600, owned by Radio Steel & Mfg. Co. (Radio Steel). The patent covers an improved wheelbarrow. The complaint alleged that MTD Products, Inc. (MTD), had manufactured and sold wheelbarrows that infringed the patent. After trial, the district court held that the patent was valid but not infringed. Radio Steel & Mfg. Co. v. MTD Products, Inc., 566 F.Supp. 609, 220 USPQ 35 (N.D.Ohio 1983). In a previous appeal, 731 F.2d 840, 221 USPQ 657 (Fed.Cir.), cert. denied, --- U.S. ----, 105 S.Ct. 119, 83 L.Ed.2d 62 (1984), we affirmed the district court's holding of patent validity, reversed its holding of noninfringement, and remanded the case for an accounting.

Following a trial in the accounting phase of the case, the district court awarded Radio Steel damages of $588,719.93 plus postjudgment interest and costs. The court found that "[t]he overwhelming majority of MTD's sales of the infringing wheelbarrows was to three retail store chains: White Stores, Montgomery Ward, and K-Mart." It determined that Radio Steel was entitled to recover lost profits on MTD's sales to K-Mart and the White Stores, which it calculated at $296,937.21. On MTD's sales to stores other than those two, the court ruled that Radio Steel was entitled to a reasonable royalty of ten percent, which amounted to $155,634.81.

The district court's combined damage award of $588,719.93 included prejudgment interest. The court rejected MTD's contention that Radio Steel was not entitled to prejudgment interest because it had allowed patent notices to remain on its wheelbarrows after the patent had expired.

The court held that MTD's infringement was not willful and therefore declined to enhance the damages or to award attorney fees.

II

In its appeal, MTD contends that (A) the award of lost profits was improper, (B) the ten percent royalty rate was excessive, and (C) Radio Steel's failure to remove patent markings from its wheelbarrows after the patent had expired barred the award to it of prejudgment interest.

A. Lost Profits. In awarding lost profits, the district court applied the standard announced in Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 197 USPQ 726 (6th Cir.1978), which we implicitly approved in Central Soya Co., Inc. v. George Hormel & Co., 723 F.2d 1573, 220 USPQ 490 (Fed.Cir.1983). Under Panduit, to receive lost profits a patent owner must prove:

(1) demand for the patented product, (2) absence of acceptable noninfringing substitutes, (3) his manufacturing and marketing capability to exploit the demand, and (4) the amount of the profit he would have made.

Panduit, supra at 1156, 197 USPQ at 730. The district court found that Radio Steel had proved the four elements of Panduit with respect to sales MTD made to K-Mart and the White Stores.

On appeal, MTD challenges only the district court's finding that there were no acceptable noninfringing substitutes. That was a finding of fact that we can reverse only if it is clearly erroneous. Gyromat Corp. v. Champion Spark Plug Co., 735 F.2d 549, 222 USPQ 4 (Fed.Cir.1984); see also Anderson v. City of Bessemer, --- U.S. ----, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). MTD has not shown that the finding has that fatal flaw.

The district court found that

the patented wheelbarrow has several attributes which demonstrate an absence of substitutes. The patented wheelbarrow could be shipped unassembled, thereby allowing more compact shipping with lower shipping costs. The wheelbarrows could be easily assembled at the stores.... The absence of the "shin scraper" brace along the rear of the legs, which was necessary in other wheelbarrows to achieve structural regidity [sic], also added to the popularity of the patented wheelbarrow.... Although other noninfringing contractor-type wheelbarrows exist in the market, such wheelbarrows are not acceptable substitutes for the patented product.

MTD contends, however, that

wheelbarrows for many years past ... perform the same function of transporting a load contained in a bowl or tray on one wheel propelled by an operator holding the handles on which the bowl or tray is mounted and propelling the assembly on the single wheel. All wheelbarrows which have been on the market produce this result and are available acceptable substitutes.

Some of these wheelbarrows ... have two-piece handles which facilitate packaging of the parts of the wheelbarrow, and these too are available acceptable non-infringing wheelbarrows.

This argument is another formulation of the contention, rejected twice by the district court and once by this court, that the patent simply was a combination of old elements. It ignores the district court's earlier ruling in the liability phase that "[i]t is the totality of all the elements and their interaction with each other which is the inventor's contribution to the art of wheelbarrow making." 566 F.Supp. at 619, 220 USPQ at 43. It also ignores the statement in our prior opinion that "as the district court held, the '600 patent 'descri[bed] ... a new and improved complete wheelbarrow.' " 731 F.2d at 845, 221 USPQ at 661. The various wheelbarrows to which MTD refers incorporate only some, but not all, of the elements of the patent. They do not establish that the district court's finding that these were not acceptable noninfringing substitutes is clearly erroneous.

B. Reasonable Royalty. The district court's determination that ten percent was a reasonable royalty on MTD's sales to stores other than K-Mart or White Stores reflected the court's own independent judgment and was not based upon the court's acceptance of the evidence of either party. Indeed, the court rejected the reasonable royalty figures of both parties.

The district court rejected MTD's estimate of two percent, stating that it did not find that figure to be a reasonable royalty. It observed that Radio Steel lost sales not only of the patented wheelbarrows, but also of collateral items that are normally attendant to the sales of wheelbarrows, such as garden carts and lawn mowers. The court also noted that MTD made substantial sales to White Stores, Montgomery Ward, and K-Mart of noninfringing wheelbarrows with the sale of the infringing wheelbarrows.

The court rejected Radio Steel's figure of twenty-one percent, indicating its view that that amount, which is two-thirds of Radio Steel's incremental profit, was too high a royalty for a patent that would expire in three years. The court also expressed concern that Radio Steel's twenty-one percent figure would allow the company to collect unreasonably high royalties from MTD's sales to Montgomery Ward, with whom Radio Steel had been unable to establish a regular and consistent merchandising arrangement. The court concluded that

[c]onsidering the age of the patent, the patent's novelty and contribution to the industry, Radio Steel's unwillingness to license, the profit margin on the wheelbarrows, the availability of wheelbarrows from other manufacturers, and the collateral sale benefits, the Court finds 10% to be a reasonable royalty on MTD's sale of wheelbarrows to other than K-Mart and the White Stores.

MTD challenges the ten percent royalty on two grounds.

1. MTD asserts that ten percent is unreasonably high because it far exceeds the profit MTD actually made on the infringing wheelbarrows. It relies on testimony by its treasurer that the profit MTD made on the sale of infringing wheelbarrows was low, and that in one year it had a loss on those sales.

The determination of a reasonably royalty, however, is based not on the infringer's profit, but on the royalty to which a willing licensor and a willing licensee would have agreed at the time the infringement began. Panduit, 575 F.2d at 1158, 197 USPQ at 731. Moreover, the district court could well have discounted MTD's profit figures because the treasurer also testified that the infringing wheelbarrows might have been utilized as loss-leaders at various times during the period of infringement.

2. MTD contends that ten percent is not commensurate with the "patent's novelty and contribution" to the industry. MTD contends that the patent's "contribution, if any, consisted of forming channels on the ends of the cross-brace member as demonstrated at the trial on liability." MTD continues:

[Radio Steel] did not invent the wheel, nor the bowl or tray, nor the supporting legs, nor the handles and certainly not two-piece handles which are useful in the packaging of the wheelbarrow parts. Wheelbarrows are extremely old and any contribution to the world's knowledge of wheelbarrows must of necessity be of a minute scale. The cost of forming channels on the ends of the cross-brace member, is to be compared to the cost of the wheel, the bowl or tray, the legs, and the handles. The value of each of the parts is commensurate with the cost. The...