Tektronix, Inc. v. United States

• Citation: 552 F.2d 343
• Decision Date: 23 March 1977
• Docket Number: No. 79-61.,79-61.
• Parties: TEKTRONIX, INC. v. The UNITED STATES et al.
• Court: U.S. Claims Court

552 F.2d 343

TEKTRONIX, INC. v. The UNITED STATES et al.

No. 79-61.

United States Court of Claims.

March 23, 1977.

Robert C. Miller, Arlington, atty. of record, for plaintiff; Norman Eric Jorgensen, Beaverton, Or., of counsel.

Thomas J. Scott, Jr., Washington, D.C., with whom was Asst. Atty. Gen. Rex E. Lee, Washington, D.C., for defendant.

Richard J. Egan, Cleveland, Ohio, atty. of record, and Baldwin, Egan, Walling & Fetzer, Cleveland, Ohio, of counsel, for third party defendant The Hickok Electrical Instrument Co.

Boris Haskell, Washington, D.C., atty. of record, for third party defendant Jetronic Industries, Inc.

Robert E. Burns, New York City, atty. of record, for third party defendant Lavoie Laboratories, Inc.

Before COWEN, Senior Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG and BENNETT, Judges, en banc.

OPINION

DAVIS, Judge.

In Tektronix, Inc. v. United States, 445 F.2d 323, 195 Ct.Cl. 53, 170 U.S.P.Q. 100 (1971), claims in eight patents owned by plaintiff were held to be valid and infringed. The present task is to fix the reasonable compensation to which plaintiff is entitled under 28 U.S.C. § 1498, including a sum for the delay in payment. Former Trial Judge Cooper concluded that Tektronix should recover the basic amount of $4,831,773, plus compensation for delay computed at simple interest (varying from 4.60% in 1960 to 6.59% in 1969) on the amounts allocable to the individual years in which infringement occurred, such interest to be paid until the principal sum is satisfied. Both sides have sought review, both as to the principal amount and as to delay compensation. Though we agree with, and borrow from, much of the trial judge's reasoning, we come to different results on both the basic compensation and the delay payments.

I.

The patents in suit relate to oscilloscopes and their electronic circuitry. Since defendant now concedes that all of the oscilloscopes here accused are covered by one or more claims of one or more of the patents, it is unnecessary to discuss in detail either the patents or the accused devices. However, it is pertinent to note the importance of the patents in suit and the impact they have had on the industry.

Plaintiff was organized in 1946, specifically to manufacture oscilloscopes designed by its then-president Howard Vollum. Research and development, funded by plaintiff, ultimately led to the model 516, 535, 535A, 545, and 545A oscilloscopes, all of which embody the patents in suit.¹ These oscilloscopes (or scopes) met with resounding success upon entering competition with those manufactured by nationally known competitors. They were deemed at the time to be superior in engineering and performance to all other scopes in their class and defendant purchased them in substantial numbers.

In 1958, apparently desirous of having alternative sources of supply and not wishing to pay plaintiff's price,² defendant issued an invitation for bids, inviting manufacturers to submit bids on an oscilloscope which was to consist of "one each oscilloscope subassembly MX-2330( )/G; Tektronix, Inc. Model 535," and "one each preamplifier AN-1839( )/USM; Tektronix, Inc. type 53/54C." The Hickok Electrical Instrument Company responded to the invitation and agreed to furnish a "Tektronix, Inc. Model 535 as manufactured by Hickok."

To fulfill this contract, Hickok purchased a 535 oscilloscope from Tektronix and began to manufacture copies. Subsequently, two other companies, Jetronic Industries and Lavoie Laboratories, Inc.,³ were awarded contracts to manufacture competing copies of the Tektronix scopes. It is clear from the evidence that defendant, unable to obtain comparable, noninfringing scopes from alternative sources, tailored its procurement specifications in such a way as to make infringement of plaintiff's patents a virtual prerequisite for obtaining the Government contracts. By essentially copying plaintiff's instruments, and without incurring the costs of engineering and developing the instruments, the third-party defendants (Hickok, Jetronic, Lavoie) were able to underbid plaintiff on contracts for the procurement of these scopes. This, of course, resulted in substantial savings to defendant, both on the purchase of the scopes and on the purchase of the related, but unpatented, plug-ins used with the scopes. Defendant realized these savings while at the same time taking advantage of plaintiff's extensive service and field organization to help with the training of its employees in the use and servicing of the infringing scopes.

The period of infringement extended from 1959 to 1969 and involved the procurement by defendant of 17,542 scopes at a net cost (for scopes only) of approximately $16,944,840. The infringing scopes bear the model designations 1805, 1805A, USM/81, LA261, LA265, LA265A, LA545, AN/USM-105, AN/USM-140, and AN/USM-141.

With the exception of the last three models, each of those scopes was supplied to the Government in direct competition with plaintiff's commercial scopes. The remaining three scopes, comprising 8,437 of the total, although embodying the circuits of the patents in suit, were militarized or more rugged versions developed by the Hewlett-Packard Company which had attempted to design around plaintiff's patents but, finding it could not, had requested and was granted a cross-license arrangement with plaintiff. Plaintiff did not market, and did not seek to bid on, scopes of this type, choosing to restrict its efforts to the commercial scopes. Hickok and Lavoie did, however, bid on and receive contracts for supplying these militarized scopes and, in so doing, extended their infringing activities.

II.

The parties⁴ are in agreement that plaintiff has no established licensing program or royalty applicable to the patents in this accounting. Beyond that, however, they have urged wholly divergent theories of recovery in the Trial Division and before the court on review. The polar nature of their respective views is revealed by a comparison of the end result each party arrives at as to what constitutes reasonable and entire compensation. Not including delay damages, defendant's sum is on the order of $185,445, while plaintiff's sum is set at $12,094,638. The disparity in their positions also extends to the issue of delay damages where plaintiff contends for damages up to $25,005,090, while defendant proposes a much more modest $91,590.

Defendant's basic theory, premised on Badowski v. United States, 278 F.2d 934, 150 Ct.Cl. 482, 137 U.S.P.Q. 656 (1960), and Saulnier v. United States, 314 F.2d 950, 161 Ct.Cl. 223, 137 U.S.P.Q. 222 (1963), lumps all the infringing devices into one category and leads to a reasonable and entire compensation equivalent to a nominal sliding-scale royalty based on the selling price of the oscilloscope only, without regard to any unpatented ancillary equipment sold with the scope. As a guide for selecting a suitable royalty rate, defendant relies on the licensing practices of RCA and Western Electric, both of which granted licences in the commercial electronics field at rates ranging from 2% down to 1%, the latter rate being applicable to sales to the Department of Defense. Defendant suggests that a sliding scale of 1.5% on the first $2 million, 1.2% on the next $3 million, and 1% on the remainder, would be appropriate here.

Plaintiff, on the other hand, divides the contracts for the procurement of infringing scopes into two categories, the first being those contracts that, in its view, would have been awarded to plaintiff "but for" the infringement, while the second consists of those contracts for the rugged or militarized scopes on which plaintiff did not bid and which it could not have supplied. With respect to the first category, plaintiff asks for an amount that would place it in as good a pecuniary position as it would have been had it received the infringing procurement. In short, plaintiff seeks lost profits, its authority consisting principally of two cases: Imperial Machine & Foundry Corp. v. United States, 69 Ct.Cl. 667, 5 U.S.P.Q. 332 (1930), and Waite v. United States, 69 Ct.Cl. 153, 4 U.S.P.Q. 387 (1930), rev'd on other grounds, 282 U.S. 508, 51 S.Ct. 227, 75 L.Ed. 494 (1931). As to the second category, plaintiff concedes a lost-profit theory is inapplicable and contends that compensation must be determined by adopting a reasonable royalty based on a willing-buyer/willing-seller concept as enunciated in Georgia-Pacific Corp. v. U.S. Plywood-Champion Papers, Inc., 446 F.2d 295 (2d Cir. 1971), 170 U.S.P.Q. 369, cert. denied, 404 U.S. 870, 92 S.Ct. 105, 30 L.Ed.2d 114 (1971).

III.

It is settled that recovery of reasonable compensation under § 1498 is premised on a theory of an eminent domain taking under the Fifth Amendment. Calhoun v. United States, 453 F.2d 1385, 197 Ct.Cl. 41, 51, 1391, 172 U.S.P.Q. 438 (1972); Pitcairn v. United States, Ct.Cl., 547 F.2d 1106, No. 50328, decided Dec. 15, 1976. The Supreme Court has in many cases emphasized that basic equitable principles of fairness are the governing consideration in determining just compensation for an eminent domain taking. In Almota Farmers Elevator & Warehouse Co. v. United States, 409 U.S. 470, 93 S.Ct. 791, 35 L.Ed.2d 1 (1973), it was stated, at 473-74, 93 S.Ct. at 794:

The Fifth Amendment provides that private property shall not be taken for public use without "just compensation." "And `just compensation' means the full monetary equivalent of the property taken. The owner is to be put in the same position monetarily as he would have occupied if his property had not been taken." United States v. Reynolds, 397 U.S. 14, 16 90 S.Ct. 803, 25 L.Ed.2d 12 (footnotes omitted). See also United States v. Miller, 317 U.S. 369, 373 63 S.Ct. 276, 87 L.Ed. 336. To determine such monetary equivalence, the Court early established the concept of "market value": the owner is entitled to the fair market value of his property at the time of the taking. New York

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