TWM Mfg. Co., Inc. v. Dura Corp.
| Decision Date | 25 April 1986 |
| Docket Number | Nos. 85-2153,85-2237 and 85-2273,s. 85-2153 |
| Citation | 229 USPQ 525,789 F.2d 895 |
| Parties | , 229 U.S.P.Q. 525 TWM MANUFACTURING CO., INC., Appellee/Cross-Appellants, v. DURA CORP. and Kidde, Inc., Appellants/Cross-Appellees. Appeal* . |
| Court | U.S. Court of Appeals — Federal Circuit |
Francis P. Carr, Kenyon & Kenyon, New York City, argued, for appellants/cross-appellees. With him on brief, was Arthur D. Gray.
Geoffrey R. Myers, Hall, Myers & Rose, Potomac, Md., argued, for appellee/cross-appellants.
Before MARKEY, Chief Judge, NICHOLS, Senior Circuit Judge, and SMITH, Circuit Judge.
Dura Corp. and Kidde, Inc. (Dura) appeal from a judgment of the United States District Court for the Eastern District of Michigan, adopting a report of a special master awarding TWM Manufacturing Co., Inc. (TWM) $31,288,496 in damages for patent infringement. We affirm.
U.S. Patent No. 3,285,621 ('621 patent) issued on November 15, 1966 to Stephen Turner, Jr. The patented device is a "Wheeled Vehicle Suspension" enabling trucks to engage an additional axle and wheels to carry heavy loads. Turner assigned the patent to TWM on August 28, 1969.
On December 19, 1966, Turner charged Dura with infringing the '621 patent and tendered Dura a license. During negotiations, Dura said it believed the patent invalid. Negotiations ended on April 24, 1967. Dura did not hear from Turner again until his assignee, TWM, sued Dura on February 22, 1973.
The district court granted Dura's motion for summary judgment, holding TWM's claim barred by laches and estoppel. 189 USPQ 274 (E.D.Mich.1975). On appeal, the Sixth Circuit reversed and remanded, holding that a genuine issue of material fact existed on whether Dura had engaged in egregious conduct that might undermine its laches and estoppel defenses. 592 F.2d 346, 201 USPQ 433 (6th Cir.1979). TWM had alleged that Dura "plagiarized" the claimed invention and harassed TWM by initiating or sponsoring third party litigation challenging the patent.
On remand, the district court found that: (1) Dura's behavior was so egregious as to defeat the laches defense; (2) the absence of affirmative misconduct by TWM defeated the estoppel defense; (3) Dura had willfully infringed, and (4) Dura's "copying" was not such bad faith as to warrant attorney fees. The court upheld the patent. 213 USPQ 423 (E.D.Mich.1981).
The district court entered judgment: reserving decision on enhanced damages; granting an immediate injunction against infringement; and ordering an immediate accounting. The accounting, but not the injunction, was stayed pending Dura's appeal to the Sixth Circuit Court of Appeals. While that appeal was pending, the district The Sixth Circuit Court of Appeals: affirmed the rejection of the laches and estoppel defenses and the upholding of the patent; held that Dura had violated the injunction, but was not guilty of criminal contempt; and remanded for determination of damages. 722 F.2d 1261, 221 USPQ 25 (6th Cir.1983).
court found Dura in criminal contempt of the injunction because it sold repair parts for its infringing suspensions. Dura appealed that finding to the Sixth Circuit Court of Appeals.
The special master held an evidentiary hearing on damages and rendered her report. The district court orally adopted that report in toto as not clearly erroneous. See Fed.R.Civ.P. 53(e)(2).
The special master calculated compensatory damages as $8,511,596, the sum of: (1) a 30% royalty, and lost profits for the years proven ($6,465,714); (2) $100 for each sale made by TWM at prices forced lower by the infringement ($1,577,200); (3) special discounts by TWM on some sales to compete with Dura's pricing practices ($468,682); and (4) $100 for each sale by Dura in TWM's lost profit years, because TWM would have made those sales at a $100 higher price ($366,900). The special master trebled the damages and added prejudgment interest, arriving at the ultimate figure of $31,288,496.
In this appeal, Dura does not contest the award of interest, but contests each calculation of damages by the special master as "grossly excessive."
Whether the damages judgment appealed from rested on an abuse of discretion.
OPINIONThe methodology of assessing and computing damages under 35 U.S.C. Sec. 284 is within the sound discretion of the district court. Yarway Corp. v. Eur-Control USA, Inc., 775 F.2d 268, 275, 227 USPQ 352, 357 (Fed.Cir.1985); King Instrument Corp. v. Otari Corp., 767 F.2d 853, 863, 226 USPQ 402, 409 (Fed.Cir.1985), cert. denied, --- U.S. ----, 106 S.Ct. 1197, 89 L.Ed.2d 312 (1986). Dura, as appellant, has the burden of convincing this court that the district court abused its discretion. Seattle Box Co. v. Industrial Crating and Packing, Inc., 756 F.2d 1574, 1581, 225 USPQ 357, 363 (Fed.Cir.1985); Paper Converting Machine Co. v. Magna-Graphics Corp., 745 F.2d 11, 21, 223 USPQ 591, 598 (Fed.Cir.1984). "Abuse of discretion may be established by showing that the district court either made an error of law, or a clear error of judgment, or made findings which were clearly erroneous." Seattle Box Co., 756 F.2d at 1581, 225 USPQ at 363; see also American Original Corp. v. Jenkins Food Corp., 774 F.2d 459, 462-64, 227 USPQ 299, 300-02 (Fed.Cir.1985).
35 U.S.C. Sec. 284 governs the award of damages for patent infringement. It 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, together with interest and costs as fixed by the court.
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The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.
For the years TWM could not establish its lost profits, TWM and Dura agreed that the district court should determine a reasonable royalty based on a "hypothetical royalty resulting from arm's length negotiations between a willing licensor and a willing licensee." Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1078, 219 USPQ 679, 682 (Fed.Cir.1983); see Tektronix, Inc. v. United States, 552 F.2d 343, 348-49, 213 Ct.Cl. 257, 193 USPQ 385, 390- 392 (1977), cert. denied, 439 U.S. 1048, 99 S.Ct. 724, 58 L.Ed.2d 707 (1978); Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.Supp. 1116, 1120-22, 166 USPQ 235, 238-39 (S.D.N.Y.1970), modified, 446 F.2d 295, 170 USPQ 369 (2d Cir.), cert. denied, 404 U.S. 870, 92 S.Ct. 105, 30 L.Ed.2d 114 (1971). The parties recognize that no established royalty exists in this case.
The special master, citing Georgia-Pacific and Tektronix, used the so-called "analytical approach", in which she subtracted the infringer's usual or acceptable net profit from its anticipated net profit realized from sales of infringing devices.
Relying principally on a memorandum written by "Dura's top management" before the initial infringement, the special master found that Dura projected a gross profit averaging 52.7% from its infringing sales. From that figure, she subtracted overhead expenses to get an anticipated net profit in the range of 37% to 42%. Subtracting the industry standard net profit of 6.56% to 12.5% from that anticipated net profit range, she arrived at a 30% reasonable royalty.
Dura says the special master erred as a matter of law in failing to analyze all factors delineated in Georgia-Pacific. Had she done so, says Dura, she would have found the "analytical approach" inapplicable. Unlike the situation in Georgia-Pacific, Dura argues, Turner had an unproven product he was desperate to license to a company like Dura with marketing and manufacturing expertise, and there was a market leader with an established non-infringing product. Dura contends that it was error for the special master to rely on Dura's estimate of future profit in a purely speculative memorandum. Having reevaluated the Georgia-Pacific factors, Dura strenuously argues that the 30% royalty was "exorbitant" and "totally at odds with the result indicated by the other factors."
Dura has cited nothing which would limit the district court's discretion in choosing the analytical approach to determine a reasonable royalty. Section 284 does not mandate how the district court must compute that figure, only that the figure compensate for the infringement. Aro Manufacturing Co. v. Convertible Top Replacement Co., 377 U.S. 476, 507, 84 S.Ct. 1526, 1543, 12 L.Ed.2d 457, 141 USPQ 681, 694 (1964).
In arguing against the district court's application of the analytical approach, Dura deals mostly with events subsequent to its initial infringement. Although evidence of actual profits is generally admissible, Trans-World Manufacturing Corp. v. Al Nyman & Sons, Inc., 750 F.2d 1552, 1568, 224 USPQ 259, 269 (Fed.Cir.1984), the district court here correctly focused on the date when the infringement began. Hanson, 718 F.2d at 1079, 219 USPQ at 682; Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1158, 197 USPQ 726, 731 (6th Cir.1978).
On appeal, an infringer cannot successfully argue that the district court abused its discretion in awarding a "high" royalty by simply substituting its own recomputation to arrive at a lower figure. See Paper Converting Machine Co., 745 F.2d at 21, 223 USPQ at 598-99. That argument does not show error, but merely indicates the damages an infringer-appellant would prefer to pay. That the district court might have viewed the infringer's evidence more favorably is not a basis for reversal. See American Original Corp., 774 F.2d at 462-64, 227 USPQ at 300-02.
Whether Dura's computation was more accurate than that proffered by TWM's experts was for the special master to decide. Dura's pointing to facts that might have supported a lower royalty does not sustain its burden of showing that the district court abused its...
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