SmithKline Diagnostics, Inc. v. Helena Laboratories Corp.

• Decision Date: 26 February 1991
• Docket Number: Nos. 90-1002,90-1021,s. 90-1002
• Citation: 17 USPQ2d 1922,926 F.2d 1161
• Parties: SMITHKLINE DIAGNOSTICS, INC., Plaintiff-Appellant, v. HELENA LABORATORIES CORPORATION, Defendant/Cross-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1161

926 F.2d 1161

17 U.S.P.Q.2d 1922

SMITHKLINE DIAGNOSTICS, INC., Plaintiff-Appellant, v. HELENA LABORATORIES CORPORATION, Defendant/Cross-Appellant.

Nos. 90-1002, 90-1021.

United States Court of Appeals Federal Circuit.

Feb. 26, 1991.

Donald R. Dunner, Finnegan, Henderson, Farabow, Garrett & Dunner, of Washington, D.C., argued for plaintiff-appellant. With him on the brief was Allen M. Sokal.

Jerold I. Schneider, Spencer & Frank, of Washington, D.C., argued for defendant/cross-appellant. With him on the brief was John W. Schneller.

Before NIES, Chief Judge, ^* MILLER, Senior Circuit Judge, and GEORGE, District Judge. ^**

NIES, Chief Judge.

SmithKline Diagnostics, Inc. (SKD) appeals the judgment of the United States District Court for the Eastern District of Texas, SmithKline Diagnostics Inc. v. Helena Laboratories Corp., 12 USPQ2d 1375 (E.D.Tex.1989), awarding SKD $625,461.06 against Helena Laboratories Corporation to compensate for Helena's infringement of SKD's U.S. Patent No. 4,365,970 (the '970 patent). The award was based upon a 25% royalty on the selling price of Helena's infringing product plus interest. SKD appeals, urging that the district court wrongly denied SKD a greater amount calculated on the basis of SKD's lost profits and also wrongly denied costs to SKD. Helena cross-appeals, asserting that the amount of the award bears no rational relationship to the evidence in the record and seeks to have it based on 3% as a reasonable royalty. We affirm.

I BACKGROUND

SKD owns the '970 patent for a specimen test slide and method for detecting occult (hidden or invisible) blood in fecal matter. The invention is marketed under the trademark HEMOCCULT, and it is useful in the early diagnosis of a variety of gastroenterological diseases including colorectal cancer. Helena markets various specimen test slides under the trademark

COLOSCREEN. Only Helena's COLOSCREEN specimen test slide containing hemoglobin has been held to infringe SKD's '970 patent. See SmithKline Diagnostics, Inc. v. Helena Laboratories Corp., 859 F.2d 878, 891, 8 USPQ2d 1468, 1479 (Fed.Cir.1988) (containing a thorough discussion of the '970 patent and its underlying technology). In this appeal we are called upon to review the amount awarded by the district court as damages upon the remand of the case following our prior decision.

SKD sought to have damages calculated on the basis of its lost profits. The court concluded, however, that SKD failed to prove its damages under this theory. The district court found that SKD did not show "even a slight or reasonable possibility, let alone a reasonable probability, that it would have made the sales of [HEMOCCULT slides] but for the sales by Helena." SKD, 12 USPQ2d at 1380. In reaching that conclusion the district court found that: (1) acceptable, noninfringing substitutes existed for SKD's HEMOCCULT slide; and (2) SKD did not establish that it had the manufacturing capacity or had access to the manufacturing capacity needed to cover the increased demand. Further, even assuming SKD would have made Helena's In view of SKD's failure to prove lost profit damages, the district court turned to ascertainment of a reasonable royalty for the infringement. In this connection, the court considered the evidence that SKD was unwilling to license its patent; that Helena competed with lower priced competitors; Helena's profit, market share and sales strategy; the presence of acceptable, noninfringing substitutes; other royalty rates paid by Helena; and testimony of witnesses for each party as to a reasonable royalty. The court expressed its uncertainty as to whether it was restricted to fixing damages based on the evidence proffered by one of the parties as to a specific percentage asserted to be a reasonable royalty, or whether it was free to exercise its own independent judgment and to determine a reasonable royalty based on the court's evaluation of all of the evidence. The court solved this problem by making findings on each basis. The district court stated that, if forced to choose between the precise figures, Helena's proof of 3% as a reasonable royalty was more credible than SKD's proof of 48%. Specifically it stated:

sales, the district court rejected as incredible SKD's proof as to the amount of profit it would have made, absent Helena's infringement.

The Court rejects Mr. Kay's conclusion of one-half SKD's lost profit, which amounts to a royalty of about 48% of Helena's selling price, as unreasonable. Helena offered expert testimony, through former Commissioner Schuyler, based on the two existing Helena licenses, that a reasonably [sic] royalty in this case would not exceed 3% of the selling price of Helena's slides. The Court credits the testimony of former Commissioner Schuyler....

* * * * * *

Fifty percent of SKD's profit [i.e., 48% of Helena's price], the "reasonable royalty" theory urged by SKD, is not credible as a reasonable royalty because of all the factors considered by the Court and is expressly rejected. Considering all the evidence as a whole, that amount would be a windfall to SKD and a penalty to Helena, and it is too large to reasonably compensate the patent owner for its proven damages.

SKD, 12 USPQ2d at 1379, 1381. The district court went on to find alternatively:

[I]f the Court is entitled to exercise its own independent judgment, based on the evidence as a whole, then the Court finds and concludes that a damage award adequate to compensate SKD for the infringement is 25% of Helena's selling price.

SKD, 12 USPQ2d at 1381. Concluding ultimately that it was not restricted to selecting either of the specific figures proffered by the parties, the district court entered a damage award of $395,800.25 based on 25% of Helena's total sales of infringing goods plus prejudgment interest for a total of $625,461.06. SKD now challenges the district court's rejection of its proof of damages based on a claim of lost profits, whereas Helena maintains that the court erred in awarding damages based on 25% rather than 3% of Helena's sales. SKD also seeks to overturn the denial of costs.

II ISSUES

1. Whether the district court's findings that SKD failed to establish the factors supporting lost profits as the measure of its damages are clearly erroneous.

2. Whether the district court was restricted to 3% as a reasonable royalty.

3. Whether the district court's award calculated on a 25% royalty was insufficiently explained or is clearly erroneous.

4. Whether the district court abused its discretion in denying SKD costs.

III STANDARD OF REVIEW

Section 284 of the 1952 Patent Act provides: "Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer...." 35 U.S.C. Sec. 284 Damages is the amount of loss to a patentee. Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 505, 84 S.Ct. 1526, 1542, 12 L.Ed.2d 457, 141 USPQ 681, 693 (1964) (Brennan plurality); Duplate Corp. v. Triplex Safety Glass Co., 298 U.S. 448, 451, 56 S.Ct. 792, 793, 80 L.Ed. 1274 (1936). A patentee may seek to recover actual damages, usually, the amount of profits actually lost, or if unable to prove actual damages, the patentee is entitled to a reasonable royalty. Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1574, 7 USPQ2d 1606, 1612 (Fed.Cir.1988); see Hartness Int'l, Inc. v. Simplimatic Eng'g Co., 819 F.2d 1100, 1112, 2 USPQ2d 1826, 1835 (Fed.Cir.1987); 5 D. Chisum, Patents Sec. 20.03, at 20-71 (1990). ¹

                (1988).  Through section 284, "Congress sought to ensure that the patent owner would in fact receive full compensation for 'any damages' he suffered as a result of the infringement."    General Motors Corp. v. Devex Corp., 461 U.S. 648, 654-55, 103 S.Ct. 2058, 2062, 76 L.Ed.2d 211, 217 USPQ 1185, 1188 (1983)
                

We agree with the district court that the amount of a prevailing party's damages is a finding of fact on which the plaintiff bears the burden of proof by a preponderance of the evidence. Thus, where the amount is fixed by the court, review is in accordance with the clearly erroneous standard of Fed.R.Civ.P. 52(a). "A finding is 'clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948). However, certain subsidiary decisions underlying a damage theory are discretionary with the court, such as, the choice of an accounting method for determining profit margin, see Hartness Int'l, Inc., 819 F.2d at 1112, 2 USPQ2d at 1835, or the methodology for arriving at a reasonable royalty, see TWM Mfg. Co. v. Dura Corp., 789 F.2d 895, 899, 229 USPQ 525, 527 (Fed.Cir.), cert. denied, 479 U.S. 852, 107 S.Ct. 183, 93 L.Ed.2d 117 (1986). Such decisions are, of course, reviewed under the abuse of discretion standard. ²

In this case, SKD sought actual damages based on lost profits. While it also had a fallback position for damages calculated on the basis of a "reasonable royalty," SKD used the same purported lost profit figure translated into a percent of Helena's sales to yield a reasonable royalty figure of 48%. The district court found SKD's profit figures incredible in either context. On appeal, SKD simplifies matters by merely appealing the issue of damages based on its purported actual loss of profits.

IV LOST PROFITS DAMAGES

The district court found that SKD failed to establish by a preponderance of the evidence all of the requirements for a damage award based on SKD's lost profits. SKD contends that the district court committed clear error in making subsidiary as well as the ultimate findings. We cannot agree.

SKD sought to prove damages under the standard set forth in Panduit Corp. v. Stahlin Bros....