Sun Studs, Inc. v. ATA Equipment Leasing, Inc.

• Decision Date: 04 March 1987
• Docket Number: Civ. No. 78-714-RE.
• Parties: SUN STUDS, INC., Plaintiff, v. ATA EQUIPMENT LEASING, INC., an Oregon corporation, Applied Theory, Inc., an Oregon corporation, and United States Natural Resources, a Delaware corporation, Defendants.
• Court: U.S. District Court — District of Oregon

655 F. Supp. 1013

SUN STUDS, INC., Plaintiff, v. ATA EQUIPMENT LEASING, INC., an Oregon corporation, Applied Theory, Inc., an Oregon corporation, and United States Natural Resources, a Delaware corporation, Defendants.

Civ. No. 78-714-RE.

United States District Court, D. Oregon.

March 4, 1987.

COPYRIGHT MATERIAL OMITTED

William A. Birdwell, Spears, Lubersky, Campbell, Bledsow, Anderson & Young, Don H. Marmaduke, Tonkon, Torp, Galen, Marmaduke & Booth, Portland, Or., for plaintiff.

David W. Axelrod, Schwabe, Williamson, Wyatt, Moore & Roberts, Robert L. Harrington, Portland, Or., for defendants.

OPINION

REDDEN, Judge:

Plaintiff Sun Studs, Inc. filed this action in 1978 against defendants. The trial was trifurcated. Phase 1 concerned issues of patent validity and infringement. Phase 2 concerned plaintiff's claims for misappropriation of confidential information and common law copyright infringement, as well as plaintiff's and defendant Applied Theory's claims for breach of contract. Phase 3 was to determine damages.

The jury returned its special verdict for phase 1 on December 1, 1986. It found that all of the patent claims in suit are valid. It found infringement of these patent claims by certain of the representative sawmills and veneer mills, and no infringement by others. It also found that defendants Applied Theory and ATA Equipment Leasing, Inc. (ATA) are the alter ego of defendant U.S. Natural Resources, Inc. (USNR). USNR was found not to have induced infringement, but to have contributed to their infringement. ATA was found to have induced or contributed to infringement of the McCloud and Dillard mills.

The jury also determined in phase 1 that laches did not apply to plaintiff's claims as to veneer mills, but did apply as to sawmills. The jury found that estoppel did not apply to either type of mill. Finally, it determined that none of the infringements were willful.

Phase 2's special verdict was entered December 17, 1986. The jury found that Applied Theory breached the 1971 contract between itself and Sun Studs by use of the SIMPX program, but by no other means. It also found that Sun Studs breached both the 1971 and 1973 contracts with Applied Theory by failing to timely pay 50% of all license fees received by it from licensing of the Sohn et al. U.S. Patent No. 3,852,579. A breach of a common law confidential relationship was charged to Applied Theory, but the claim was declared barred by the statute of limitations. Finally, the jury found that Applied Theory committed common law copyright infringement by use and dissemination of the SIMPX program, and that this claim was not barred by the statute of limitations.

The jury entered its special verdict on phase 3 on February 6, 1987. It found total damages for defendants' patent infringements to be $710,000. It further found damages for Applied Theory's contract breach to be $10,000, and damages for the common law copyright breach to be $10,000. Applied Theory's damages for breach of contract were determined to be $309,629.36.

The parties have agreed to the entry of a partial judgment, which will incorporate the jury's three verdicts. They also agree that several issues will be dealt with after the entry of the partial judgment: plaintiff's request for increased damages pursuant to 35 U.S.C. § 284; plaintiff's and defendants' requests for prejudgment interest; plaintiff's request for attorneys' fees pursuant to 35 U.S.C. § 285; plaintiff's and defendants' requests for costs; and plaintiff's request for an injunction against use of the SIMPX program. The parties also agree that the time for filing of motions for judgment notwithstanding the verdict will be ten days from the entry of this partial judgment.

The parties dispute whether an injunction should enter at this time, and if so, what its scope should be. If an injunction does enter, the defendants move that it be stayed in whole or in part pursuant to Fed.R.Civ.P. 62(c).

I conclude that an injunction is now appropriate, and that it should be stayed only in certain specified areas as explained below.

DISCUSSION

A. The Partial Judgment

The jury has found that Sun Studs' patents are valid, and that several of them have been infringed by defendants' systems. The trial was before a jury, and their findings are accorded deference. Protection against possible future infringements is urged as the reason for an injunction. An injunction is appropriate.

Defendants challenge the scope of the injunction sought by plaintiff. Plaintiff seeks to enjoin the infringement of its patents not only by means which are the same as or no more than colorably different than the apparatus or processes found to have infringed; they seek to enjoin acts of infringement "including, without limitation" those means. The requested injunction is too broad.

In KSM Fastening Systems v. H.A. Jones Co., 776 F.2d 1522 (Fed.Cir.1985) the Federal Circuit reviewed a district court's finding of contempt for violating a consent decree. The court noted:

The unreasonableness of a decree incorporating a vague or broad prohibition against `infringement' of a `patent' is alleviated because of the universal rule, to be addressed infra, that contempt proceedings, civil or criminal, are available only with respect to devices previously admitted or adjudged to infringe, and to other devices which are no more than colorably different therefrom and which clearly are infringements of the patent.

Id. at 1526. This strikes the proper balance between allowing one found to have infringed the opportunity to design around the patent, and preventing further infringement by the same device or one no more than colorably different. Id. The point is reinforced:

Turning first to the question of the judgment of contempt itself, we agree, of course, that the issue in contempt proceedings is violation vel non of the injunction, not patent infringement. Nevertheless, devices which could not be enjoined as infringements on a separate complaint cannot possibly be deemed enjoined as infringements under an existing injunction in contempt proceedings ... Infringement is the sine qua non of violation of an injunction against infringements.

Id. at 1528 (emphasis in original).

The court held the district court was in error in finding contempt without first finding that the accused device is an infringement. Id. at 1532. It therefore vacated the contempt judgment and remanded. Id.

I see no good purpose in imposing an injunction broader than the matters which have been litigated in this action. If defendants infringed one of plaintiff's patents by a means not colorably the same as those here involved, I could not find contempt without a prior finding that the new device infringed. The just completed trial would not help in determining whether this finding should be made, given that a device not even colorably the same would be involved. I might be unable to enter such a finding absent a trial on the merits.

Defendants raise another issue: the appropriateness of imposing an injunction when a reasonable or established royalty has already been assessed for the use of the patents. They argue that the assessment of damages based on a reasonable or established royalty creates a license for future as well as past use. However, such damages do not cover future use. 4 Deller's Walker on Patents, § 398 (1965). The only practical protection which plaintiff has for future infringement is an injunction.

Issues are also raised as to whether an injunction against infringement prohibits Applied Theory from providing incidental maintenance and support services, and whether it prohibits delivery and installation of systems to its customers which were earlier ordered and are nearly completed. Although both are covered by the injunction, it will be stayed in these areas.

If use of a device constitutes an infringement, then the maintenance or repair of the device is an infringement, since it perpetuates the infringement. Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 484-85, 84 S.Ct. 1526, 1530-31, 12 L.Ed.2d 457 (1984). Thus, if use of the systems supplied by Applied Theory to its customers constitutes an infringement, then Applied Theory's maintenance and service support infringe. Thus, an injunction against infringement includes a prohibition of maintenance and service work.

Similarly, delivery or installation of an infringing system is generally the time when all of the apparatus elements of the patent claim are first constructed and ready for use. The law of this case is that this is the moment of infringement. Hence, an injunction against infringement includes a prohibition of delivery or installation of infringing systems, even though most of the work on them was completed prior to the partial judgment and prior to the entry of the verdict in phase 1.

B. Motion for Stay of the Injunction

Defendants move to stay the injunction against infringement, in its entirety, pursuant to Fed.R.Civ.P. 62(c). Rule 62(c):

When an appeal is taken from an interlocutory or final judgment granting, dissolving, or denying an injunction, the court in its discretion may suspend, modify, restore, or grant an injunction during the pendency of the appeal upon such terms as to bond or otherwise as it considers proper for the security of the rights of the adverse party.

Four requirements must be met for a stay under Rule 62(c) to be imposed: (a) that the applicant make a strong showing that he is likely to succeed on the merits of the appeal; (b) that the applicant establish that unless a stay is granted he will suffer irreparable injury; (c) that no substantial harm will come to other interested parties; and, (d) that a stay would do no harm to the public interest. 11 Wright & Miller, Federal Practice and Procedure: Civil § 2904. No one of these factors alone dictates the result; rather, the court considers all of the factors and balances the equities presented by the...