State Industries, Inc. v. Mor-Flo Industries, Inc.

• Decision Date: 14 November 1991
• Docket Number: MOR-FLO,No. 91-1167,91-1167
• Citation: 948 F.2d 1573,20 USPQ2d 1738
• Parties: STATE INDUSTRIES, INC., Plaintiff-Appellant, v.INDUSTRIES, INC. and American Appliance Mfg. Corp., Defendants-Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1573

948 F.2d 1573

20 U.S.P.Q.2d 1738

STATE INDUSTRIES, INC., Plaintiff-Appellant, v. MOR-FLO INDUSTRIES, INC. and American Appliance Mfg. Corp.,

Defendants-Appellees.

No. 91-1167.

United States Court of Appeals, Federal Circuit.

Nov. 14, 1991.

Rehearing Denied Dec. 12, 1991.

Paul R. Puerner, Law Offices of Paul R. Puerner, Milwaukee, Wis., argued, for plaintiff-appellant. With him on the brief, was Daniel D. Ryan, Fuller, Ryan & Hohenfeldt, S.C.

Charles W. Bradley, Davis Hoxie Faithfull & Hapgood, New York City, argued for defendants-appellees. With him on the brief, was Peter H. Priest. Also on the brief, were Ronald I. Weiss, Goodman Weiss Freedman, Cleveland, Ohio.

Before NIES, Chief Judge, RICH and MICHEL, Circuit Judges.

MICHEL, Circuit Judge.

State Industries, Inc. ("State") appeals the judgment, unchanged after reconsideration on remand, of the United States District Court for the Eastern District of Tennessee, awarding damages for patent infringement but denying its request for enhanced damages under 35 U.S.C. § 284 (1988). State Indus. v. Mor-Flo Indus., 17 USPQ2d 1706, 1990 WL 292151 (E.D.Tenn.1990). Because the court did not abuse its discretion in denying enhanced damages, we affirm. And because State's appeal is frivolous as filed and as argued, we impose sanctions pursuant to Fed.R.App.P. 38.

BACKGROUND

In 1984, State filed suit against Mor-Flo Industries, Inc. and its subsidiary, American Appliance Manufacturing Corporation (collectively, unless otherwise noted, "Mor-Flo"), charging infringement of U.S. Patent No. 4,447,377, directed to a method of insulating the tank of a water heater. Following a bench trial on the issue of liability, the district court held State's patent not invalid and infringed. State Indus. v. Mor-Flo Indus., 639 F.Supp. 937, 231 USPQ 241 (E.D.Tenn.1986). Mor-Flo appealed, and we affirmed in a nonprecedential opinion. See State Indus. v. Mor-Flo Indus., 818 F.2d 875 (Fed.Cir.) (table), cert. denied, 484 U.S. 845, 108 S.Ct. 140, 98 L.Ed.2d 97 (1987).

Subsequently, the district court held a bench trial on the issue of damages. The court awarded State lost profits on approximately 40% of Mor-Flo's infringing sales and a royalty of 3% on the remaining sales. It also found that Mor-Flo's infringement was not willful and denied enhanced damages and attorney fees. State Indus. v. Mor-Flo Indus., 8 USPQ2d 1971 (E.D.Tenn.1988). Mor-Flo again appealed, and we affirmed the judgment insofar as it awarded lost profits and a 3% royalty. State Indus. v. Mor-Flo Indus., 883 F.2d 1573, 1582, 12 USPQ2d 1026, 1032 (Fed.Cir.1989), cert. denied, 493 U.S. 1022, 110 S.Ct. 725, 107 L.Ed.2d 744 (1990).

However, as to the determination that infringement had not been willful, we noted that the district court's findings seemed inconsistent. On the one hand, the court had stated that Mor-Flo "should have known" that it was infringing and that it had "purposely patterned its foaming method upon State's," findings indicative of willfulness, while on the other hand, the court had stated that Mor-Flo had relied in good faith on the advice of counsel that their method was not infringing. Id. at 1581-82, 12 USPQ2d at 1032 (quoting the district court's opinion, 8 USPQ2d at 1982). We therefore ruled as follows:

In view of the unresolved conflicting evidence, we vacate the judgment insofar as it denies increased damages under 35 U.S.C. § 284, and remand to the district court to reconsider whether a finding of willful infringement and enhanced damages is justified. Because this could also Id. at 1582, 12 USPQ2d at 1032 (citation omitted).

affect its conclusion on attorney's fees, we do not reach them.

With this mandate, the district court on remand held an evidentiary hearing "to clarify the existing evidence in the record." 17 USPQ2d at 1707. The court stated its findings of fact in its detailed opinion, and concluding that "a finding of willful infringement and enhanced damages is not justified," it entered an order denying them. Id. at 1709. Because this order left its single damage award unchanged, State appeals.

We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1) (1988).

DISCUSSION

I

State's principal contention on appeal is that the district court's failure to find willfulness was clearly erroneous and that the court erred in not awarding enhanced damages. We disagree.

The patent statute's provision for increased damages is permissive, not mandatory: A court "may increase the damages up to three times the amount found or assessed." 35 U.S.C. § 284 (1988) (emphasis added). A finding of willfulness, though a sufficient basis for awards of enhanced damages, does not compel such an award. Modine Mfg. Co. v. Allen Group, Inc., 917 F.2d 538, 542-43, 16 USPQ2d 1622, 1625-26 (Fed.Cir.1990) (affirming denial of enhanced damages despite upholding a finding of willfulness), cert. denied, --- U.S. ----, 111 S.Ct. 2017, 114 L.Ed.2d 103 (1991).

A district court's analysis of whether to increase damages, therefore, is a two-step process. First, the court must determine whether willful infringement (or another circumstance justifying an enhanced award) is proven, a finding of fact which we review only for clear error. Id., 917 F.2d at 543, 16 USPQ2d at 1625-26. Second, if the court finds such a basis proven, it must still determine whether or not, under the totality of the circumstances, increased damages are warranted. This determination is committed to the sound discretion of the district court, and "will not be overturned absent a clear showing of abuse of discretion." Id.

State argues that on remand the district court was not authorized to reopen the record and hear further evidence on the question of willful infringement. State argues that certain of the district court's previous findings as to willfulness are law of the case and could not be overturned on the basis of evidence not introduced in the original damages trial. State further argues that even were the new testimony as to good faith reliance on advice of counsel properly considered, when that evidence is weighed against the court's previous findings, the "totality of the circumstances" compels a finding of willful infringement. State's arguments are utterly meritless.

In the first place, State's reliance on the law of the case doctrine is misplaced. Law of the case "is a judicially created doctrine, the purposes of which are to prevent the relitigation of issues that have been decided and to ensure that trial courts follow the decisions of appellate courts." Jamesbury Corp. v. Litton Indus. Prod., Inc., 839 F.2d 1544, 1550, 5 USPQ2d 1779, 1783 (Fed.Cir.), cert. denied, 488 U.S. 828, 109 S.Ct. 80, 102 L.Ed.2d 57 (1988). Under this doctrine, findings of fact reviewed in and relied upon in an appellate court's decision become the law of the case and, absent certain exceptional circumstances, may not be disturbed by a trial court on remand. See Smith Int'l, Inc. v. Hughes Tool Co., 759 F.2d 1572, 1578-79, 225 USPQ 889, 893-94 (Fed.Cir.) (affirming district court's holding that "factual issues finally laid to rest by the Ninth Circuit" were law of the case and could not be reopened), cert. denied, 474 U.S. 827, 106 S.Ct. 87, 88 L.Ed.2d 71 (1985). Cf. Exxon Corp. v. United States, 931 F.2d 874, 877-78 (Fed.Cir.1991) (findings of fact not "examined in, relied on, or otherwise necessary to" the appellate court's decision may be reexamined on remand).

But this is not a case in which findings of fact were left undisturbed, much less relied upon, on appeal. Our previous opinion clearly stated that "we vacate the judgment insofar as it denies increased damages under 35 U.S.C. § 284, and remand to the district court to reconsider whether a finding of willful infringement and enhanced damages is justified." State Indus., 883 F.2d at 1582, 12 USPQ2d at 1032 (emphasis added). The trial court's subsidiary findings can hardly be the law of the case when the judgment based on those findings was "vacated" and the court was explicitly directed to "reconsider" its decision as to willfulness and enhanced damages. On the contrary, the law of the case which the trial court was obliged to follow was our holding that the findings relating to willfulness were inadequate and required reconsideration. To the extent it is applicable at all, then, law of the case supports precisely the opposite of the proposition State advances.

Second, there is no basis for State's argument that reopening the record to hear new evidence was not permitted by our decision, in which we stated that we "remand to the district court to reconsider" willfulness and enhanced damages. Id. While we did not explicitly order the court to conduct a new hearing, we certainly did not forbid it. Absent contrary instructions, a remand for reconsideration leaves the precise manner of reconsideration--whether on the existing record or with additional testimony or other evidence--to the sound discretion of the trial court. Adelson v. United States, 782 F.2d 1010, 1012 (Fed.Cir.1986). State has not specified, and we do not discern, any abuse of discretion in this case.

Third, State's arguments as to the weight that must be given to the newly admitted testimony under the "totality of the circumstances" are utterly unpersuasive. The weighing of conflicting evidence is a task within the special province of the trial judge who, having heard the evidence, is in a better position than we to evaluate it. Particularly where, as here:

a trial judge's finding is based on his decision to credit the testimony of one of two or more witnesses, each of whom has told a coherent and facially plausible story that is not contradicted by extrinsic evidence, that finding, if not internally inconsistent, can virtually never be clear error.

Anderson v. City of Bessemer City, 470 U.S. 564, 575, 105 S.Ct. 1504, 1512, 84 L.Ed.2d 518 (1985). Moreover, even were we to hold the finding of willfulness clearly...