Seattle Box Co., Inc. v. Industrial Crating and Packing Inc.

• Decision Date: 20 March 1985
• Docket Number: No. 84-1559,84-1559
• Citation: 756 F.2d 1574,225 USPQ 357
• Parties: SEATTLE BOX COMPANY, INC., d/b/a Seattle-Tacoma Box Company, Appellee, v. INDUSTRIAL CRATING AND PACKING INC., and James F. Rennels, Appellants. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 1574

756 F.2d 1574

225 U.S.P.Q. 357

SEATTLE BOX COMPANY, INC., d/b/a Seattle-Tacoma Box Company, Appellee, v. INDUSTRIAL CRATING AND PACKING INC., and James F. Rennels, Appellants.

Appeal No. 84-1559.

United States Court of Appeals, Federal Circuit.

March 20, 1985.

Richard W. Seed, Seed & Berry, Seattle, Wash., argued for appellant.

Francis A. Utecht, Fulwider, Patton, Rieber, Lee & Utecht, Long Beach, Cal., argued for appellee. With him on the brief were Ford E. Smith, and David L. Garrison, Seattle, Wash.

Before DAVIS, Circuit Judge, NICHOLS, Senior Circuit Judge, and BALDWIN, Circuit Judge.

DAVIS, Circuit Judge.

This appeal is from a decision, on remand from this court, of the United States District Court for the Western District of Washington, which declined to accord appellants any intervening rights under 35 U.S.C. Sec. 252 as to certain infringing products. We affirm in part and reverse in part.

I. Background

We have before us a sequel to this court's decision in Seattle Box Co. v. Industrial Crating & Packing, Inc., 731 F.2d 818, 221 USPQ 568 (Fed.Cir.1984). There is no need to repeat all the details of that opinion. However, for purposes of the present appeal a brief review of the most pertinent facts is appropriate.

Seattle Box Company (Seattle Box) and Industrial Crating and Packing, Inc. (Industrial) both provide oil pipe bundling services to oil companies. Seattle Box initiated the present action against Industrial on July 2, 1980, alleging the infringement of U.S. Patent No. 4,099,617 ('617) entitled "Shipping Bundle for Numerous Pipe Lengths." On August 19, 1980, Seattle Box was granted reissue of the '617 patent in U.S. Patent No. Re 30,373 (Re '373). Consequently, on October 10, 1980, Seattle Box amended its complaint, alleging infringement of the Re '373 patent.

Briefly, the patented invention defines a system of stacking ("bundling") tiers of pipes across parallel horizontal beams or sleepers. To ensure that adjacent pipes remain separated, double-concave wooden spacer blocks are used. Figure 4 below, illustrating one such tier, depicts the pipes 18 which lie across wooden sleepers 10, 30, and the spacers 22 which separate the pipes. (Stacking these tiers results in a pipe "bundle.") The weight of the overhead load (a product of the upper tiers of pipe which are not shown) is absorbed by the spacer blocks 22. Claim 1 of the '617 patent required that a spacer block have a height "greater than the diameter of the pipe." However, in the Re '373 patent, claim 1 was amended to specify a spacer block "of a heightsubstantially equal to or greater than the thickness of the tier of pipe length." (Emphasis in the claim.)

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

On the issues of validity and infringement, the district court held in favor of Seattle Box, and after an accounting for lost profits, entered judgment on February 9, 1983. Seattle Box Co. v. Industrial Crating and Packing, Inc., 217 USPQ 343 (W.D.Wash. May 4, 1982). Industrial appealed to this court, arguing invalidity and non-infringement. Speaking for this court, Judge Nichols stated that the district court correctly held that the Re '373 patent was not invalid under either 35 U.S.C. Sec. 103 or Sec. 112. But the district court's finding of liability for pipe bundling activities Industrial performed before the Re '373 patent issued was reversed because under the first paragraph of 35 U.S.C. Sec. 252 ¹ the reissue claims were not "identical" to the original claims, and therefore infringement could only be asserted for the Re '373 patent and not the '617 patent. Further, we vacated the district court's award of damages for 84 post-reissue bundles made from spacer blocks 1/4 inch less than the diameter of the separated pipes, and remanded for a determination of literal infringement of the Re '373 patent which we found limited to those spacer blocks having a height "substantially equal" to the pipe diameter. Lastly, we vacated the district court's award of post-reissue damages for infringement of the Re '373 patent, holding that the defense of intervening rights under the second paragraph of 35 U.S.C. Sec. 252 was properly raised. Since the district court had not made any findings under Sec. 252, we remanded the case for the district court's consideration of "whether to use its broad equity powers to fashion an appropriate remedy." We declared that such a remedy is discretionary, and suggested a range of options available to the district court.

On June 12, 1984, the district court held a hearing on the matters remanded from this court. As to the 84 bundles made with spacer blocks 1/4 inch less than the pipe diameter, the district court held that these bundles did not infringe the Re '373 patent. ² Supporting its assertion that the doctrine of intervening rights applies to the post-reissue bundles (there are 919 bundles in issue), Industrial presented the affidavit testimony of Vernon Zier, Industrial's in-house accountant, who summarized Industrial's business records. Zier averred that on August 19, 1980 (the date of the Re '373 patent), there were orders for 114 bundles which were subsequently completed after that date. In addition, Industrial's inventory of spacer blocks on August 19, 1980 was sufficient to make 224 bundles (this figure incorporates the orders for the 114 bundles). Seattle Box has not contested these facts.

After considering Industrial's argument that intervening rights under 35 U.S.C. Sec. 252 should preclude an award of damages for 224 of the 919 post-reissue bundles, the district court merely stated in its final order on July 19, 1982 that:

[The 224 bundles] were made after the grant of plaintiff's reissue patent. Defendant has failed to persuade the court that good and valid reasons exist for the court to exercise its discretionary powers in favor of the Defendant as to intervening rights. The Court therefore declines to exercise its discretion in according any intervening rights as to [the 224] bundles.

It is from this order and the ensuing judgment that Industrial appeals.

In the current appeal, Industrial asserts that, contrary to this court's instructions, on remand the district court abused its discretion by not making any findings relating to intervening rights with regard to the pre-reissue spacer block inventory. Industrial also asserts that the district court abused its discretion in awarding damages according to Seattle Box's lost profits, as opposed to awarding damages calculated on the basis of a reasonable royalty rate.

II. The District Court's Action on Remand

A remand from this court to a district court which incorrectly applied the law at the outset should not be casually swept aside in a conclusory fashion. This court in its prior opinion went to considerable length to set out why the lower court erred. We pointed out that the patent claims appearing in Seattle Box's reissued patent are substantively different from those in its original patent, and therefore the doctrine of intervening rights was properly raised. The opinion suggested options available to the district court:

(1) confine Industrial to the use of those double-concave blocks already in existence,

(2) permit Industrial to continue in business under conditions which limit the amount, type or geographical location of its activities, or

(3) permit Industrial to continue in business unconditionally.

731 F.2d at 830, 221 USPQ at 977. Thus, our opinion plainly envisaged a reasoned discussion of the whole matter. We hold (for the reasons expressed below) that the cursory ruling by the district court disregards our prior opinion, and constitutes an abuse of discretion.

When a district court applies a statute erroneously and thus fails to make findings of fact under Federal Rule of Civil Procedure 52(a), or fails properly to provide an indication of the grounds for its exercise of discretion, an appellate court will normally remand for further proceedings in order to permit the district court to make the missing findings. See Pullman-Standard, Inc. v. Swint, 456 U.S. 273, 291, 102 S.Ct. 1781, 1791, 72 L.Ed.2d 66 (1982). In response to the lower court's erroneous view on intervening rights, this is exactly what we did in our prior opinion. And the remand result, set forth in full supra, is clearly insufficient. The failure of a trial court to comply with Rule 52(a) has been characterized as a "dereliction of duty." See 5A Moore's Federal Practice, p 52.06 (2d ed. 1984). In particular, it was error for the court to limit its statement on the equitable components of intervening rights to a mere ultimate conclusion, without any explanation whatever of the particular factors and facts it considered. See Lee v. Lee, 537 F.2d 762, 765 (3rd Cir.1976); Alpha Distrib. Co. of Cal., Inc. v. Jack Daniel Distillery, 454 F.2d 442, 453 (9th Cir.1972), cert. denied, 419 U.S. 842, 95 S.Ct. 74, 42 L.Ed.2d 70 (1974); Bateman v. Ford Motor Co., 310 F.2d 805, 806 (3rd Cir.1962).

Appellee argues that, despite the bare conclusion we have quoted, the district court made sufficient findings. As a prime example of such a finding, appellee notes that the district court, in support of its refusal to exercise discretion on remand, initially stated in its order that "... it has been shown that the materials cannot be used in a non-infringing way." (Emphasis in appellee's brief.) ³ But then, almost parenthetically, in the following paragraph of its brief, appellee notes that this citation was part of a previous order (June 28, 1984) which was revised on reconsideration because of a "minor arithmetic error." The fact is that the cited sentence was deleted from and does not appear in the final July 19, 1984 order. Seattle Box then boldly asserts that the district court "affirmatively and expressly found that no substantial preparations had been made before reissue." (Emphasis in appellee's brief.) As we have said, this finding...