Underwater Devices Inc. v. Morrison-Knudsen Co., Inc., MORRISON-KNUDSEN

Citation219 USPQ 569,717 F.2d 1380
Decision Date23 September 1983
Docket NumberMORRISON-KNUDSEN,Nos. 83-633,83-634,s. 83-633
PartiesUNDERWATER DEVICES INCORPORATED, Appellee, v.COMPANY, INC., Appellant.COMPANY, INC., Appellant, v. Lester A. HAUG, Don W. Schmid and Herman Gunther, Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals for the Federal Circuit

John E. Kidd, New York City, for appellant. With him on brief were Joseph J.C. Ranalli and Stephen J. Harbulak, New York City; Kenneth R. Kupchak, Honolulu, Hawaii, of counsel.

Robert E. Lyon, Los Angeles, Cal., for appellee. With him on brief was Richard E. Lyon, Jr., Los Angeles, Cal.; Richard L. Griffith and Larry T. Takumi, Honolulu, Hawaii, of counsel.

Before FRIEDMAN, RICH and KASHIWA, Circuit Judges.

KASHIWA, Circuit Judge.

This is a consolidated appeal from judgments of the United States District Court for the District of Hawaii (Civil Nos. 74-296 and 79-0120), entered November 30, 1982. In a published opinion, Underwater Devices Inc. v. Morrison-Knudsen Co., 217 USPQ 1039, the district court held that the appellant, Morrison-Knudsen Co. ("M-K"), had infringed claim 1 of appellees' U.S. Patent No. 3,204,417 (the " '417 patent") 1 and claims 1-4 of appellees' U.S. Patent Re. 29,364 (the "reissue patent"). 2 The district court then awarded $200,000 as damages to the appellees and trebled that amount. In addition, prejudgment interest was assessed on the entire trebled amount of $600,000. The antitrust issues were dismissed with prejudice. We affirm in part and reverse in part.

The Invention

Appellant's invention relates to a method and an apparatus for laying underwater pipes such as sewer lines. The invention is best illustrated by the broadest independent claims in the patents. Claim 1 of the reissue patent states:

1. The method of laying pipe on the floor under a body of water, comprising the steps of: releasably securing a length of pipe to a mobile frame; lowering said frame and pipe in said body of water to a stable position wherein said frame is supported securely by and in fixed relation to said floor with said length of pipe generally aligned with but spaced from the end of a pipeline already on said floor; moving at least a portion of said length of pipe, laterally of its length and relative to said frame, while holding the same secured thereto and supported thereby to bring the axis of said length of pipe into a desired and stable relation to the axis of said pipeline; and then moving said length of pipe axially, relative to said frame while holding the same secured thereto and supported thereby, into engagement with the end of said pipeline to form a continuation thereof.

Claim 1 of the '417 patent states:

1. An underwater pipe laying apparatus comprising:

a rigid frame means including horizontally spaced parallel transverse members and depending legs in rigidly fixed relation thereto adjacent each end;

an elongated spine spanning said transverse members said spine having portions disposed toward each end thereof movably secured to the transverse members for movement of the spine and said portions longitudinally of said transverse members;

means operatively connected to and between said spine and the frame means providing movement of the longitudinal axis of the spine to a position having a direction other than at right angles to the parallel axes of the transverse members; and

depending hanger means longitudinally movably supported by the spine for supporting a pipe section beneath said spine and between said legs.

Background

Spencer H. Robley filed an application for the apparatus on October 28, 1963, which subsequently issued as the '417 patent. In addition, he filed another application for the method on December 21, 1964, which subsequently issued as the '682 patent. The method application, however, did not claim priority from the earlier apparatus application as required if the benefits of 35 U.S.C. Sec. 120 are desired. 3

In response to the examiner's initial rejection of the method application under 35 U.S.C. Sec. 112, Robley filed an amendment, dated November 3, 1965, in which he stated that the "applicant can make definite reference * * * to his corresponding issued apparatus case which does show one means in detail for carrying out the steps of the instant method claims." [Emphasis in original.] In a supplemental amendment filed March 16, 1966, Robley requested the addition of the following passage in the specification of the method application:

As already pointed out, the drawings herein are merely diagrammatic and are not intended to show all structural details of a practical apparatus. They designate components that are well known types of mechanisms to those skilled in the art. For a more detailed disclosure of an apparatus capable of performing the present method, please see applicant's Patent No. 3,204,417, issued September 7, 1965.

A patent for the method was thereafter duly issued.

By agreement dated August 31, 1972, Underwater Devices Inc. ("UDI"), the assignee of the '417 and '682 patents, licensed Buckley & Company, Inc. and R.W. Denny Corp. to "jointly and not severally" use and practice the Robley inventions. This license contained a provision for royalty payments under some circumstances. The royalty was to be based on a formula which takes into account the diameter and length of pipes laid, depth of lay and adjustments for changes in construction cost over time. 4

By letter agreement dated March 15, 1974, UDI granted Hood Corporation a royalty free, nonexclusive worldwide license to make, use and practice the Robley inventions, with limitations. Similarly to the Buckley/Denny license, a royalty was to be paid under some circumstances. The agreement set forth a formula beginning with the same rates as those in the Buckley/Denny license but continuing on with rates for use in depths of water from 100 to 150 feet, 150 to 200 feet, 200 to 250 feet and over 250 feet. 5

When M-K was bidding on an underwater sewer project for Sand Island, Hawaii, UDI wrote a letter to M-K on September 28, 1973, advising that it was the owner of the Robley patents. It was UDI's common practice to advise prospective bidders for construction of ocean pipelines that UDI was the owner of the Robley patents and that UDI would grant a license for the use of the patented method and apparatus. All prospective bidders on the same project were offered the same terms. The letter, in pertinent part, stated:

For the Sand Island Ocean Outfall [sewer line], the * * * [Robley] method and apparatus appears to be the optimum applicable method for the installation of approximately 10,000 feet (end of trestle to end of diffuser) of the proposed outfall pipe.

* * *

* * *

To accomplish this project in conformance with the above reference, Underwater Devices is prepared to grant a license for the use of our patented method and apparatus to the contractor selected for the construction of the Sand Island Ocean Outfall. The complete license fee for this project has been established as $200,000.

After M-K was awarded the project, UDI reiterated the $200,000 license fee offer This is in response to your recent note asking for advice on how to respond to Underwater Devices' May 15, letter.

                in a letter dated May 15, 1974.  M-K, however, did not seek a license.  Instead, M-K immediately investigated ways of getting around the Robley patents.  A search in the United States Patent and Trademark Office (the "PTO") for prior art was instituted.  M-K's in-house attorney, A.J. Schlanger, advised Jack Christensen, a regional manager, in a memorandum dated December 18, 1973, that M-K "could use the * * * [prior art] system * * * to place the above outfall without the need to pay anyone a royalty if the system is not described in any of the patents we received from the patent research firm."    This one-sentence memorandum did not deal with the validity or infringement of the Robley patents.  In addition, Schlanger wrote to Christensen in a memorandum dated May 24, 1974
                

As we have discussed in the past, it would be in M-K's best interest to take a firm stand that we will not pay a royalty to Underwater Devices for the following reasons:

(1) The May 17, 1951, Engineering News-Record article closely enough described the apparatus and method referred to in Underwaters' patents to make invalid such patents; the Engineering News-Record article having been published more than one year prior to Underwaters' patent applications.

(2) Even if the Engineering News-Record article does not fully describe Underwaters' apparatus and method, such apparatus and method are simply a further development of the apparatus and method described in the Engineering News-Record article. Therefore, the Underwaters' patent would be found to be invalid, and

(3) Courts, in recent years, have--in patent infringement cases--found the patents claimed to be infringed upon invalid in approximately 80% of the cases.

I would recommend we continue to refuse to even discuss the payment of a royalty with Underwater Devices. Underwater Devices must recognize that if they sue us, they might kill the goose that lays the golden eggs.

If they do elect to sue us, then we can consider negotiating a royalty based on what it might cost us to try the suit.

If we are going to use the device for other projects, however, we might want to go all the way and let the court decide who is right.

P.S. The Martineau & Knudson indicated as a "copy addressee" on Underwater Devices' letter, is a law firm in Los Angeles whose specialties, as indicated in a law directory, are general, civil and trial practice and corporate and tax law. Apparently, Underwater Devices has not consulted with a patent attorney as yet.

Thereafter M-K, as said by the district court, "hung tough." By letter dated July 10, 1974, Christensen informed UDI that M-K considered the Robley patents to be invalid. By letter dated July 23, 1974, Schlanger informed UDI's counsel ...

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