Rite-Hite Corp. v. Kelley Co., Inc.

• Court: U.S. District Court — Eastern District of Wisconsin
• Writing for the Court: REYNOLDS, Senior
• Citation: Rite-Hite Corp. v. Kelley Co., Inc., 774 F.Supp. 1514, 21 USPQ2d 1801 (E.D. Wis. 1991)
• Decision Date: 07 October 1991
• Docket Number: Civ. A. No. 83-C-0434,89-C-0190.
• Parties: RITE-HITE CORP., Acme Dock Specialists, Inc., Allied Equipment Corp., Applied Handling, Inc., Anderson Material Handling Co., Block-Dickson, HMH Co., HOJ Engineering & Sales Co., Johnson Equipment Co., Johnl & Associates, Inc., Keller Equipment Co., Inc., Loading Dock Equipment, Metro Dock Specialists, McCormick Equipment Co., Mid-South Dock Systems, Monohan Equipment Co., Niehaus Industrial Sales, Inc., Northway Material Handling Co., Pemco, R.B. Curlin, Inc., Rice Equipment Co., Stokes Equipment Co., Soper's, Timbers & Associates, Inc., Todd Equipment Corp., Thayer Systems, W.E. Carlson Corp., Plaintiffs, v. KELLEY COMPANY, INC., Defendant.

774 F. Supp. 1514

RITE-HITE CORP., Acme Dock Specialists, Inc., Allied Equipment Corp., Applied Handling, Inc., Anderson Material Handling Co., Block-Dickson, HMH Co., HOJ Engineering & Sales Co., Johnson Equipment Co., Johnl & Associates, Inc., Keller Equipment Co., Inc., Loading Dock Equipment, Metro Dock Specialists, McCormick Equipment Co., Mid-South Dock Systems, Monohan Equipment Co., Niehaus Industrial Sales, Inc., Northway Material Handling Co., Pemco, R.B. Curlin, Inc., Rice Equipment Co., Stokes Equipment Co., Soper's, Timbers & Associates, Inc., Todd Equipment Corp., Thayer Systems, W.E. Carlson Corp., Plaintiffs, v. KELLEY COMPANY, INC., Defendant.

Civ. A. Nos. 83-C-0434, 89-C-0190.

United States District Court, E.D. Wisconsin.

October 7, 1991.

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Gilbert W. Church, Jeffrey N. Costakos, Foley & Lardner, Milwaukee, Wis., and Theodore W. Anderson, Neuman, Williams, Anderson & Olson, Chicago, Ill., for plaintiffs.

Thomas F. Ging, Thomas S. Malciauskas, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Chicago, Ill., and Glenn O. Starke, George H. Solveson, Andrus, Sceales, Starke & Sawall, Milwaukee, Wis., for defendant.

DECISION AND ORDER

REYNOLDS, Senior District Judge.

I. INTRODUCTION

This opinion addresses issues raised in the damages phase of a bifurcated patent infringement action. On March 22, 1983, Rite-Hite Corporation ("Rite-Hite") commenced this action in which it alleges that Kelley Company, Inc.'s ("Kelley") Truk Stop vehicle restraint infringed Rite-Hite's U.S. Patent 4,373,847 ("the '847 patent"). The '847 patent was issued on February 15, 1983, and covers a device for restraining trucks to loading docks during the loading or unloading process.

This action was bifurcated for trial purposes. After a hearing on the issue of liability, this court found on May 29, 1985, that the Kelley Truk Stop's rack-and-pinion mechanism for raising a vertical hook was equivalent to the ratchet-and-pawl mechanism covered by the '847 patent and that Kelley had therefore nonwillfully infringed the '847 patent. On March 5, 1986, this court issued its findings of fact, conclusions of law, and judgment enjoining Kelley from further infringements and holding Kelley liable to all the plaintiffs for infringement damages plus prejudgment interest. The court found that the Rite-Hite MDL-55 unit, which utilized the patent in suit, was a commercially successful product and that the '847 patent was valid. Finally, this court stayed the injunction pending Kelley's appeal. These rulings were reported in Rite-Hite Corp. v. Kelley, 629 F.Supp. 1042, 231 U.S.P.Q. 161 (E.D.Wis.1986), aff'd, 819 F.2d 1120 (Fed. Cir.).

On December 2, 1983, shortly after this action was filed, several independent Rite-Hite sales representative organizations ("ISO's") moved to intervene in this case, contending that their "Sales Representative Agreements" and "Dok-Lok Supplement" agreements with Rite-Hite, executed during the pendency of this lawsuit, made them exclusive licensees of the '847 patent. On August 31, 1984, this court permitted the ISO's to intervene in the liability and damages phases of the trial. On February 15, 1989, seven ISO's who had not yet intervened in this action brought a separate action entitled Block-Dickson, Inc. v. Kelley Co., Case No. 89-C-0190 (E.D.Wis.), which was consolidated with this action by stipulation of the parties on April 3, 1989.¹

With Rite-Hite and the ISO's as plaintiffs, the trial on the damages phase of this action commenced on November 7, 1990, and continued until December 7, 1990. After submitting proposed findings of facts and conclusions of law, the parties presented their closing arguments on December 19, 1990.

Before the court at this damages phase of the litigation are the following primary issues: (1) whether the plaintiff ISO's are entitled to recover damages; (2) whether the plaintiffs have proved that they lost sales on account of Kelley's infringing competition of (a) vehicle restraints and (b) dock levelers; (3) whether plaintiffs have proved lost profits damages to a reasonable probability; (4) whether the plaintiffs may recover lost profits damages under Title 35 United States Code 284 for lost sales of (a) those vehicle restraints not embodying the '847 patent, or (b) dock levelers, which also do not embody the '847 patent; (5) whether plaintiffs are entitled to a reasonable royalty for those lost sales on which they are not awarded lost profits damages, and if so, (6) what royalty rate is appropriate; and (7) what rate of prejudgment interest is appropriate.

For the reasons below, this court awards Rite-Hite as a manufacturer the wholesale profits that it lost on lost sales of ADL-100 restraints, MDL-55 restraints, and restraint-leveler packages on account of Kelley's sale of infringing Truk Stop restraints. This court also awards to Rite-Hite as a retailer and to the plaintiff ISO's reasonable royalty damages on lost ADL-100, MDL-55, and restraint-leveler sales caused by Kelley's infringing sales.

II. FINDINGS OF FACT

Much of the background of this case is recounted in the trial and appellate opinions on liability issues. That background will be retold and extended in this section only to the extent necessary to convey a complete understanding of issues presented in this damages phase of the case. This section addresses the following topics: (a) parties and jurisdiction, (b) overview of the vehicle restraint and dock leveler market, (c) Rite-Hite's development of vehicle restraints and the significance of the '847 patent, (d) Rite-Hite's marketing of vehicle restraints, (e) Kelley's development and marketing of the infringing Truk Stop restraint, (f) background of the Rite-Hite sales organizations and the exclusivity of their restraint licenses, (g) the period of infringement and the number of infringing units sold, (h) plaintiffs' lost restraint sales, (i) plaintiffs' lost dock leveler sales, (j) plaintiffs' damages, (k) the reasonable royalty rate, and (l) plaintiffs' claims for lost profits due to price cuts on actual sales.

A. Parties and Jurisdiction

Plaintiff Rite-Hite is a Wisconsin corporation with its principal place of business at Brown Deer, Wisconsin. Rite-Hite is the exclusive licensee of the '847 patent, and owner, by assignment, of all causes of action and claims for relief arising out of any infringement of that patent. The other plaintiffs are independent Rite-Hite sales organizations (ISO's) with principal places of business located throughout the country.² Defendant Kelley is also a Wisconsin corporation having a principal place of business at Milwaukee, Wisconsin.

The court has subject matter jurisdiction over this action under 28 U.S.C. § 1338(a), and this court is the proper venue under 28 U.S.C. § 1400(b).

B. Overview of the Vehicle Restraint and Dock Leveler Market

Both Rite-Hite and Kelley manufacture "vehicle restraints" and "dock levelers." "Vehicle restraints" secure trucks to loading docks to prevent accidental departure from the dock during the loading or unloading process. "Dock levelers" are devices that automatically or semi-automatically bridge the gap between a truck and a dock so that forklift trucks can safely pass over that gap during the loading or unloading process. Dock levelers, in general, have replaced the loose plates that were often used when loading and unloading was accomplished manually (Findings of Fact, Mar. 5, 1986 Decision and Order on Liability ("Findings of Fact"), ¶ 9). By the time that Rite-Hite began to develop vehicle restraints, it had already established itself as a manufacturer of dock levelers.

Rite-Hite and Kelley are both pioneers in the dock leveler business and for many years have been the primary competitors in that business. They both have strong distribution systems, and the two firms dominate their industry. During the period of infringement, they accounted for more than 80% of all dock leveler and 95% of all vehicle restraint sales (Nov. 7, 1990 Trial Testimony of Rite-Hite President Mike White ("Mike White")).

For years, manufacturers and users of dock levelers as well as regulatory agencies recognized the dangers inherent in the accidental separation of trucks from loading docks during the loading or unloading process. Such separation creates a gap between the truck and dock through which a forklift operator and his forklift can fall to the driveway below (Findings of Fact, ¶ 10). Such accidents can be catastrophic (Id.).

The American National Standards Institute (ANSI) Safety Committee MH14 addressed this danger during its October 1975 meeting (Id. ¶ 14). Specifically, ANSI considered whether "safety legs," Rite-Hite-manufactured devices which limited the extent to which the dockboard could extend, should be sold as required equipment along with levelers (Id. ¶¶ 14, 16). At that meeting, Arthur K. White, father of Mike White and the founder of Rite-Hite, proposed to eliminate the problem of accidental truck separation by developing a vehicle restraint device that would physically hook trucks to loading docks (Id. ¶ 16). Such devices did not yet exist at the time, and the only existing solutions to the inadvertent truck separation problem, wheel chocks and "communication" systems, were generally ineffective (Id. ¶ 16).

C. Rite-Hite's Development of Vehicle Restraints and the Significance of the '847 Patent

Rite-Hite spent nearly five years developing its first commercially successful vehicle restraint (Id. ¶ 17). Rite-Hite's vehicle restraint development program was arduous and involved many discarded designs (Id. ¶ 18). Rite-Hite developed its first vehicle restraint, which was never marketed, by 1977 (Id.). By continually researching new restraint designs, Rite-Hite gradually developed restraints that were less expensive, less obtrusive, and less vulnerable to being damaged by vehicles than their predecessors (Id. ¶ 19). By the...