Sargent Mfg. Co. v. Cal-Royal Prods., Inc.

• Decision Date: 24 February 2012
• Docket Number: CIVIL ACTION NO. 3:08-cv-408 (VLB)
• Parties: SARGENT MANUFACTURING CO., Plaintiff, v. CAL-ROYAL PRODUCTS, INC., Defendant.
• Court: U.S. District Court — District of Connecticut

SARGENT MANUFACTURING CO., Plaintiff,

v.CAL-ROYAL PRODUCTS, INC., Defendant.

CIVIL ACTION NO. 3:08-cv-408 (VLB)

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT

February 24, 2012

Dated: February 24, 2012

MEMORANDUM OF DECISION DENYING DEFENDANT'S PARTIAL MOTION FOR

SUMMARY JUDGMENT AS TO LOST PROFITS [Dkt. #91] AND DEFENDANT'S PARTIAL

MOTION FOR SUMMARY JUDGMENT AS TO WILLFULNESS [Dkt. #98]

I. Introduction and Background

Plaintiff, Sargent Manufacturing Co., hereinafter "Sargent," filed this suit for patent infringement against Cal-Royal Products, Inc., hereinafter "Cal-Royal," alleging that Cal-Royal has infringed its United States Patent No. 5,678,870 [ " '870 Patent"] entitled the "Reversible Mortise Lock." The Parties filed a Joint Stipulation of Infringement and Validity in which Cal-Royal stipulated that patent claims 1-8, 11, 13, 14, and 18 of Sargent's '870 Patent are infringed by the versions of Cal-Royal's M Series mortise locks sold at the time the suit was initiated in 2008. [Dkt. #140]. Accordingly, the parties consented to an inclusion, upon entry of final judgment, of a judgment of infringement of patent claims 1-8, 11, 13, 14, and 18 of the '870 by Defendant Cal-Royal and its 2008 M Series Locks, and a final judgment that the claims of the '870 Patent are not invalid.

Currently pending before the Court are two motions for summary judgment filed by Defendant Cal-Royal: (1) a motion for summary judgment as to Sargent'sclaim for lost profits under 35 U.S.C. §284 [Dkt. #91]; and (2) a motion for summary judgment as to Sargent's Willfulness Claim seeking treble damages and attorney's fees and costs asserting that Cal-Royal's infringement was willful [Dkt. #98].

A hearing on both motions for summary judgment was held on Wednesday February 15th, 2012.

II. Standard of Review

"Summary judgment should be granted 'if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.' [Fed.R.Civ.P. 56(a)]. The moving party bears the burden of proving that no factual issues exist. [Vivenzio v. City of Syracuse, 611 F.3d 98, 106 (2d Cir.2010)]. 'In determining whether that burden has been met, the court is required to resolve all ambiguities and credit all factual inferences that could be drawn in favor of the party against whom summary judgment is sought.' [Id., (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986))]. 'If there is any evidence in the record that could reasonably support a jury's verdict for the nonmoving party, summary judgment must be denied.' [Am. Home Assurance Co. v. Hapag Lloyd Container Linie, GmbH, 446 F.3d 313, 315-16 (2d Cir.2006) (internal quotation marks and citation omitted)]. In addition, '[a] party opposing summary judgment cannot defeat the motion by relying on the allegations in his pleading, or on conclusory statements, or on mere assertions that affidavits supporting themotion are not credible. At the summary judgment stage of the proceeding, Plaintiffs are required to present admissible evidence in support of their allegations; allegations alone, without evidence to back them up, are not sufficient.' [Welch-Rubin v. Sandals Corp., No.3:03cv481, 2004 WL 2472280, at *1 (D.Conn. Oct. 20, 2004) (internal quotation marks and citations omitted); Martinez v. State of Connecticut, No. 3:09civ1341(VLB), 2011 WL 4396704 at *6 (D. Conn. Sept. 21, 2011)].

III. Discussion

A. Motion for Summary Judgment as to Lost Profits

The amount of damages due to a patent holder on the basis of patent infringement is a question of fact for which the patent holder bears the burden of proof. SmithKline Diagnostics, Inc. v. Helena Laboratories Corp., 926 F.2d 1161, 1164, (Fed. Cir. 1991). Determining the appropriate amount of damages to compensate a patent holder for infringement "is not an exact science, and the methodology of assessing and computing damages is committed to the sound discretion of the district court." State Industries, Inc. v. Mor-Flo Industries, Inc., 883 F.2d 1573, 1577 (Fed. Cir. 1989) (citation omitted).

"To recover lost profits a patentee must produce evidence of 'a causal relation between the infringement and its loss of profits.' " Rosco, Inc. v. Mirror Lite Co., 626 F.Supp.2d 319, 328 (E.D.N.Y. 2009) (quoting Bic Leisure Prods., Inc. v. Windsurfing Int'l, Inc., 1 F.3d 1214, 1218 (Fed. Cir. 1993). Where the evidence presented by the patentee is insufficient to establish lost profits, a court must determine and award a reasonable royalty. See 35 U.S.C. §284 (providing inrelevant part, that a court shall award the victim of infringement "no less than a reasonable royalty for the use made of the invention by the infringer, together with interests and costs as fixed by the court."). At a minimum, "the floor for a damage award is no less than a reasonable royalty." State Industries, 883 F.2d at 1577. (citation omitted). If the patent holder is able to prove some amount of actual damages, the court may award damages representing actual damages to the extent they are proven, and a reasonable royalty for the remainder. See Id. (citing TWM Mfg. Co. v. Dura Corp., 780 F.2d 895, 898 (Fed Cir. 1986).

At dispute on summary judgment is Defendant Cal-Royal's assertion that Sargent cannot establish lost profits as a measure of damages.

Sargent's damages expert, John Crawford articulated his opinion in his expert report that Sargent is entitled to lost profits on the basis that sales of Cal-Royal's infringing mortise lock diverted sales from Sargent, the '870 Patent owner. Sargent notes, in its Memorandum in Opposition to Summary Judgment as to Lost Profits, that it does not seek to recover lost profits for all of Cal-Royal's sales because Mr. Crawford determined that some of Cal-Royal's sales would have gone to Yale Commercial Locks and Hardware, a company licensed to manufacture mortise locks under Sargent's '870 Patent. Relying on the "Panduit Test" set forth in Panduit Corp v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978), Crawford's expert report argues that Sargent is entitled to lost profits for the portion of the infringer Cal-Royal's sales for which Sargent can demonstrate "but-for" causation, and then reasonable royalties for any remaining infringing sales.

Cal-Royal argues that Sargent and Crawford's reliance on the Panduit test is misplaced, asserting that the reversible mortise lock market is a multi-player market, segmented substantially by price point, requiring a lost profits analysis under the Bic Leisure test, set forth in Bic Leisure Profits v. Windsurfing, 1 F.3d 1214 (Fed. Cir. 1993). Cal-Royal asserts that under the Bic Leisure analysis of lost profits in a segmented market, Sargent cannot show that it would have received any of Cal-Royal's sales given the availability of multiple sources of reversible mortise locks at lower prices.

The standard for determining lost profits in a two party market is set by the four factor test of Panduit. Under the Panduit test, in order to recover lost profits from an infringer, a patentee must prove: (1) demand for the patented product; (2) the absence of acceptable non-infringing substitutes; (3) sufficient manufacturing and marketing capability to exploit the demand; and (4) the amount of profit lost. Panduit, 575 F.2d at 1156.

In Bic Leisure, the Federal Circuit limited the applicability of the Panduit test, holding that the Panduit test "operates under an inherent assumption [ . . . ] that the patent owner and the infringer sell products sufficiently similar to compete against each other in the same market segment." Bic Leisure, 1 F.3d at 1218. However, as the Bic Leisure court discussed, in the absence of this assumption, the driving force of the Panduit test, "Panduit's first two factors do not meet the 'but for' test- a prerequisite for lost profits." Id. The first Panduit factor, requiring demand for the patented product, "presupposes that demand for the infringer's and patent owner's products is interchangeable," allowingevidence of sales of the infringing product to demonstrate demand for the substantially similar patented product. Id. The second Panduit factor, absence of acceptable, non-infringing alternatives, relies on the same assumption of substantially similar products. As the Bic Leisure court reasoned, "[t]o be acceptable to the infringer's customers in an elastic market, the alleged alternative 'must not have a disparately higher price than or possess characteristics significantly different from the patented product.'" Id. at 1219 (quoting Kaufman Co. v. Lantech, 926, F.2d 1136, 1142 (Fed. Cir. 1991)).

In Bic Leisure, the Federal Circuit reversed the district court's award of lost profits under the Panduit test, finding that due to significant manufacture, design, and price differences in the sailboard market, along with the presence of at least fourteen competitors, the assumption underlying the Panduit test was not appropriate and could not be used by the patent holder to establish 'but-for' causation. 1 F.3d at 1219.

Cal-Royal contends that the reversible mortise lock market is similar to the market for windsurfing boards in Bic Leisure for two reasons.

1. Price Disparity

First, Cal-Royal argues that the reversible mortise locks offered for sale by Sargent and Cal-Royal are offered at very different price points, asserting that Sargent's patented product targets a "high-priced niche" and Cal-Royal's product targets the "bargain basement" customers. Accordingly, Cal-Royal argues that due to the significant price differences between Sargent and Cal-Royal's respective products, Sargent cannot rely on the Panduit test to establish that'but-for' Cal-Royal's infringing product, those customers would have purchased Sargent's product. However, the expert opinion procured by Cal-Royal to...