Universal Gym Equipment, Inc. v. ERWA Exercise Equipment Ltd.

• Decision Date: 02 September 1987
• Docket Number: 87-1019,Nos. 86-1681,s. 86-1681
• Citation: 827 F.2d 1542,4 USPQ2d 1035
• Parties: , 4 U.S.P.Q.2d 1035 UNIVERSAL GYM EQUIPMENT, INC., Plaintiff-Cross-Appellant, v. ERWA EXERCISE EQUIPMENT LIMITED and Global Gym and Fitness Equipment Limited, Defendants-Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1542

827 F.2d 1542

56 USLW 2164, 4 U.S.P.Q.2d 1035

UNIVERSAL GYM EQUIPMENT, INC., Plaintiff-Cross-Appellant, v. ERWA EXERCISE EQUIPMENT LIMITED and Global Gym and Fitness

Equipment Limited, Defendants-Appellants.

Nos. 86-1681, 87-1019.

United States Court of Appeals, Federal Circuit.

Sept. 2, 1987.

George T. Mobille, Cushman, Darby & Cushman, Washington, D.C., argued for defendants-appellants. With him on the brief, was Robert W. Adams. Also on the brief, was Robert E. Sharkey, Gordon, Feinblatt, Rothman, Hoffberger & Hollander, Baltimore, Md., of counsel.

Gordon D. Coplein, Darby & Darby, P.C., New York City, argued for plaintiff-crossappellant. With him on the brief, were Melvin C. Garner and Peter C. Schechter.

Before FRIEDMAN, Circuit Judge, SKELTON, Senior Circuit Judge, and SMITH, Circuit Judge.

FRIEDMAN, Circuit Judge.

These are an appeal and a cross-appeal from a judgment of the United States District Court for the District of Maryland, in a suit charging patent infringement, breach of contract, and unfair competition. See Universal Gym Equip., Inc. v. Atlantic Health & Fitness Prods., 229 USPQ 335 (D.Md.1985) (oral opinion on liability only). The court ruled that the patent had not been infringed and that the defendants had not engaged in unfair competition, but that the contract had been breached, and awarded damages for the breach. We uphold the findings of noninfringement and breach of contract, but remand the case to the district court to reconsider and, if necessary, to recalculate the damages.

I

A. Background. Universal Gym Equipment, Inc. (Universal) manufactures and sells exercise weight-lifting machines. It brought the present suit against Atlantic Health and Fitness Corporation (Atlantic), ERWA Exercise Equipment Limited (ERWA) and ERWA's wholly-owned subsidiary, Global Gym and Fitness Equipment Limited (Global), which also manufactures and sells exercise weight-lifting machinery.

Both Universal and Global make and sell "standard resistance" and "variable resistance" weight-lifting machines; in the latter, the amount of force the user is required to exert varies during the exercise cycle. Such variation apparently is desirable because it corresponds to the variations in available muscle strength during exercise, so that the muscles are continuously worked at a level of nearly maximum effort.

The complaint charged (1) that the three defendants had (a) infringed Universal's U.S. Patent Re. 31,170 (the '170 patent), and (b) engaged in unfair competition and misused trade secrets, and (2) that ERWA and Global (as ERWA's successor) had breached a 1972 contract between Universal and ERWA. The complaint sought damages, an injunction, and specific performance of the contractual provision allegedly violated.

The three defendants denied the allegations of the complaint. They also counterclaimed for a declaratory judgment that the patent was invalid and that they had not infringed it. Global also asserted in the counterclaim that Universal had violated the antitrust laws, engaged in unfair competition, and conspired to interfere and B. The Patented and the Allegedly Infringing Exercise Machines. The exercise machine described in the '170 patent is shown in the illustration below, which is based upon one of the drawings in the patent:

interfered with Global's business relations. At the end of the trial, the court dismissed the latter three claims, and no appeal has been taken from that ruling.

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

The carriage is attached around both the lever arm and the vertical shaft by rollers, from which carriage the weight stack hangs; the placement of the pin determines the number of weights lifted. The user operates the device by lifting the lever arm by the handle. As the handle is lifted, the lever arm pivots on its fixed axis, and the carriage moves up the vertical shaft while also sliding along the lever arm. The sliding of the carriage along the lever arm as the handle is lifted continuously increases the relative length of the part of the lever arm that is supporting the carriage (and thus the weight stack) while correspondingly decreasing the length of the part of the lever arm between the carriage and the handle. This increases the upward force that the user is required to apply to the handle to lift it further.

Universal asserted that the Global variable resistance exercise machine infringed claims 5 and 6 of the '170 patent. The claim language that is critical to this case describes "a frame" and "a lever arm" that is "pivotally mounted in said frame at a lever arm pivot and pivotally movable by a user through an exercise cycle," with a handle "interconnected with said lever arm at a location remote from and in fixed relationship to the lever arm pivot for applying pivotal movement force thereto." See id. at 339.

The Global machine is shown in the illustrations below, which are based upon the drawings in Global's U.S. Patent No. 4,354,675:

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

The first carriage is attached around the angled shaft by rollers. The second carriage is attached around the vertical shaft by rollers, from which carriage hangs the weight stack; the placement of the pin determines the number of weights lifted. The link of fixed length connects the two carriages. The user operates the device by lifting the first carriage by its handle. As the first carriage is lifted and slides up the angled shaft, the link pulls the second carriage, which slides up the vertical shaft. As the handle is lifted higher and the carriages rise along their respective shafts, the shafts (and therefore the carriages) become farther apart, which, because of the fixed length of the link, increases the upward force that the user is required to apply to the handle to lift it further.

C. The Contract. In 1972, Universal and ERWA entered into an agreement under which ERWA could manufacture, market, and sell Universal exercise machines in Canada under Universal trademarks, in return for paying royalties to Universal. The agreement obligated Universal to "provide [ERWA] with plans and specifications which [Universal] has found necessary to insure proper assembly and performance of Licensed Product," as well as to "make [Universal]'s engineer available to [ERWA] in Canada for the purpose of acquainting [ERWA] with said know-how." ERWA promised to keep the technical knowledge thus acquired confidential.

The agreement provided for termination, by either party without cause, upon 6 months' notice. Paragraph 18 of the agreement further provided that after termination ERWA

shall not thereafter manufacture, use, sell, or distribute any products which include any of the features, designs, technical information, or said know-how of [Universal] and will not thereafter use Licensed Trademarks or any other trademark or trade style in any way similar to any of those of [Universal].

Universal, 229 USPQ at 345. Universal gave notice of termination on April 12, 1978, and the agreement terminated as of November 20, 1978.

In August 1978, ERWA's principals formed Global as a wholly-owned subsidiary of ERWA. On November 21, 1978, using ERWA's facilities and employees, Global began manufacturing and selling exercise equipment; ERWA became a holding company.

D. The District Court's Decisions on Liability and Damages.

1. Liability.

(a) After reviewing the "claims, the patent specification, the patent drawings, and the expert testimony," as well as the patented and accused devices themselves, the district court concluded that Global's device does not literally infringe the Universal patent because not all of the elements of the claims are present in the Global device. Id. at 340-41. The court first found that the '170 patent "lever arm" and the Global "link" function "in an entirely different manner," particularly because Universal's lever arm must be rigid while Global's link need not be. Id. at 341. The court also found that Global's "link" was not "pivotally mounted in said frame," as is the "lever arm" of the '170 patent claims, because it was not attached to the frame at all: "the [claim] language does not simply mean that the lever arm is somehow within the dimensions of the frame." Id.

The district court also found no infringement under the doctrine of equivalents. It found that "the Global device operates in a very different way from the Mazman invention [the '170 patent] in its achievement of variable resistance, the similar result, for the several reasons it has explained earlier in this opinion." Id. at 343.

(b) After determining that under the governing California law Global was ERWA's "corporate alter ego," and, as such, was "bound by the 1972 agreement between ERWA and Universal," id. at 345, the district court ruled that paragraph 18 of the agreement means exactly what it says: that if [Global's standard resistance machine] does contain any Universal features and designs, the contract has been breached. It is irrelevant to the question of breach whether these items were already in the public domain or were reverse engineered, because the parties freely contracted to limit the items' use after the termination of the contract.

Id. at 346.

The district court then found that the Global standard resistance exercise machines incorporated Universal's "features and designs." Id. at 347. The court relied on "the testimony of Frank Smith, Universal's national sales manager, who compared over 100 slides of the same components of the Universal and Global machines and found numerous features and designs that were the same." Id. at 345.

The court found, however, that "[u]nlike the evidence submitted as to features and designs, the evidence relating to [misuse or appropriation] of technical knowledge and know-how does not sustain the plaintiff's burden of proof." Id. at 347. The court also found that Universal had not...