Water Technologies Corp. v. Calco, Ltd.

• Decision Date: 16 June 1988
• Docket Number: Nos. 87-1204,87-1205,s. 87-1204
• Citation: 7 USPQ2d 1097,850 F.2d 660
• Parties: WATER TECHNOLOGIES CORPORATION, Water Pollution Control Systems, Inc., and Kansas State University Research Foundation, Plaintiffs-Appellees, v. CALCO, LTD., Defendant-Appellant, and William J. Gartner, Defendant. WATER TECHNOLOGIES CORPORATION, Water Pollution Control Systems, Inc., and Kansas State University Research Foundation, Plaintiffs-Appellees, v. William J. GARTNER, Defendant-Appellant, and Calco, Ltd., Defendant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 660

850 F.2d 660

7 U.S.P.Q.2d 1097

WATER TECHNOLOGIES CORPORATION, Water Pollution Control

Systems, Inc., and Kansas State University

Research Foundation, Plaintiffs-Appellees, v. CALCO, LTD., Defendant-Appellant, and William J. Gartner, Defendant.

WATER TECHNOLOGIES CORPORATION, Water Pollution Control

Systems, Inc., and Kansas State University

Research Foundation, Plaintiffs-Appellees, v. William J. GARTNER, Defendant-Appellant, and Calco, Ltd., Defendant.

Nos. 87-1204, 87-1205.

United States Court of Appeals,

Federal Circuit.

June 16, 1988.

Michael R. Dinnin, Harness, Dickey & Pierce, Birmingham, Mich., argued for plaintiffs-appellees. With him on the brief was Robert A. Dunn.

Robert E. Wagner, Wallenstein, Wagner, Hattis, Strampel & Aubel, Ltd., Chicago, Ill., argued for defendants-appellants. With him on the brief were Daniel N. Christus and Alan L. Barry.

Before NIES and ARCHER, Circuit Judges, and SKELTON, Senior Circuit Judge.

NIES, Circuit Judge.

Calco, Ltd. and William J. Gartner appeal from the judgment of the United States District Court for the Northern District of Illinois, 658 F.Supp. 961 (N.D.Ill.1986), ¹ in favor of Water Technologies Corporation, its wholly owned subsidiary, Water Pollution Control Systems, Inc. (collectively WTC/WPCS), and Kansas State University Research Foundation (KSURF), holding them liable for willful infringement of certain claims of U.S. Patents Nos. 3,817,860; 3,923,665; 4,187,183; and 4,190,529 and for unfair competition. We reverse the district court's judgment to the extent it held Calco and Gartner liable for unfair competition. We vacate the damage award based on lost profits and remand for redetermination of damages. In all other respects, the judgment is affirmed. Accordingly, we affirm-in-part, reverse-in-part, and remand.

I BACKGROUND

This case involves improved bactericidal resins used as disinfectants for purifying water. The plaintiff, WTC/WPCS, developed a drinking cup and other products which use such resins and are useful to campers, backpackers, and travelers. Calco, a competitor in the field, manufactures For twenty to thirty years before the developments claimed in the earliest of the patents at issue, scientists had used materials such as halogens (iodine, bromine, or chlorine) to disinfect water. These prior techniques inserted halogen tablets directly into the water. Unfortunately, such techniques left large, residual amounts of the disinfectant in the water, which detracted from the water's taste and, in large applications, such as in swimming pools, risked harm to the eyes and mucous membranes.

and sells water purifying drinking straws which also contain bactericidal resins. Gartner is the president of a chemical laboratory which does testing and is the inventor/licensor of a patent for the water purifying straw made by Calco. Gartner also works as a consultant.

Professors Jack L. Lambert and Louis R. Fina worked to solve that problem at Kansas State University (KSU) during the late 1960's. The professors developed a process able to purify water, rendering it bacterially sterile, by passing the water through a strongly basic anion exchange resin containing triiodide. ² The triiodide groups react on demand with bacteria in water suspensions to kill the bacteria. For that reason, the triiodide resins are also called "demand" bactericide resins: the disinfectant resin generally releases iodine only upon contact with bacteria or germs to be killed. Moreover, the process has the advantage of disinfecting without forming a detectable concentration of iodine in the water and the treated water is ready for immediate use.

Lambert and Fina obtained U.S. Patent No. 3,817,860 (the '860 patent), covering a method of disinfecting water using the demand bactericide resin, on June 18, 1974. On December 2, 1975, they obtained U.S. Patent No. 3,923,665 (the '665 patent) covering the demand bactericide resin itself and the process of preparing that resin. Both patents issued from continuation-in-part applications of an abandoned application, Serial No. 881,923, filed on December 3, 1969. Both patents were assigned to KSURF.

In 1973, KSURF granted an exclusive license to Aqua-Chem, Inc., under the '860 and '665 patents. Dr. Gary L. Hatch, an employee of Aqua-Chem, then developed two improvement inventions. The improvements covered a demand bactericide resin which still comprised primarily triiodide resin but added thirty to forty percent of the polyiodide pentaiodide, I 8 5. This mixed-form polyhalide resin, composed of both triiodide and pentaiodide ions, elutes reduced levels of iodide ions in water of high salt concentrations (250 ppm sodium chloride or greater). Hatch obtained U.S. Patent No. 4,187,183 (the '183 patent) on February 5, 1980, covering the mixed-form polyhalide resin itself. On February 26, 1980, Hatch obtained U.S. Patent No. 4,190,529 (the '529 patent), covering a method of disinfecting water using that resin. Hatch assigned both patents to Aqua-Chem.

In September of 1977, Aqua-Chem granted an exclusive license under the then-pending Hatch applications, and an exclusive sublicense under the Lambert-Fina patents, to WTC/WPCS for purifier products containing less than 100 cubic centimeters (cc) of the resins. Operating under the licenses, WTC/WPCS developed, inter alia, its water purifying cup.

In late 1979, Gartner contacted Aqua-Chem in his capacity as consultant for Brunswick Corporation, a company not involved in this litigation, which he indicated was interested in taking a license from Aqua-Chem to use its resin products in new water purification devices. Through the auspices of Aqua-Chem, Gartner met with the personnel of WTC/WPCS in August of 1979. He received literature at In July of 1980, Gartner applied for a patent covering a straw-type water purifying device, specifying merely that a triiodide resin could be used therein. On August 28, 1980, Gartner met again with Aqua-Chem. At that time Aqua-Chem gave Gartner its preferred formula and stoichiometric ratio of ingredients on the basis that Gartner would assist Aqua-Chem in licensing products larger than 100 cc in size. This formula was disclosed in Table I of the '183 and '529 patents which had issued in February 1980, but apparently Gartner did not become aware of the patents until September 1980. Gartner gave the patented Aqua-Chem resin formula to Calco in August or September of 1980 in connection with licensing Calco to make Gartner's water purifying straw, a product containing less than 100 cc of resin.

that meeting which described WTC/WPCS's water purifier products using the '665 triiodide resin.

By September 1980, Calco was also aware of the patents but, with Gartner's assistance, on November 4, 1980, manufactured a first batch of the Hatch triiodide resin which it put into straws marketed under the trademark POCKET PURIFIER owned by Gartner. Gartner tested the straws, helped Calco obtain EPA approval, and wrote the directions for use of the product by consumers. Calco sold 400-500 units of devices made with the first batch of resin. A few units were also sold or distributed by Gartner.

During the beginning of 1981, Gartner developed a modified resin formula which ultimately he patented. That formula added a small amount of potassium bromide (the amount of bromine that actually remained in the modified resin was only about 0.5% by weight, 658 F.Supp. at 974) to the patented Hatch resin formula. Gartner added the potassium bromide because he thought this addition might make it "possible to skirt both the KSU and Aqua-Chem patents." at 968. Calco started to work with the new resin on February 23, 1981, and Gartner's laboratory continued to evaluate Calco's products. When this work and evaluation were complete, Calco used the new, modified resin in the POCKET PURIFIER straws which it thereafter marketed.

WTC/WPCS discovered the POCKET PURIFIER straws on the market in the early Fall of 1981. That discovery prompted WTC/WPCS to ask its licensor, Aqua-Chem, to challenge the accused infringing product. When Aqua-Chem declined, WTC/WPCS withheld royalties from Aqua-Chem and, as exclusive licensee under the patents, filed an action on July 13, 1982, against Calco, Gartner, and Aqua-Chem, charging, inter alia, patent infringement and unfair competition. The action also named Aqua-Chem as involuntary plaintiff.

Aqua-Chem responded by terminating the exclusive licenses to WTC/WPCS in September of 1982 and by filing cross claims against WTC/WPSC for unpaid royalties under the 1977 license agreement and against Gartner for damages for misappropriation of alleged trade secrets.

Aqua-Chem and WTC/WPCS settled their cross claims in an agreement signed in May 1985 to which KSURF was a signatory. In accordance with the agreement, Aqua-Chem assigned the '183 and '529 Hatch patents to KSURF and surrendered its license under KSURF's '860 and '665 patents. As the owner of the four patents, KSURF (appellee herein) voluntarily joined WTC/WPCS as plaintiff. In an order dated on or about June 14, 1985, the district court dismissed Aqua-Chem's cross-complaint, specifically "with prejudice."

In the restructured case, the district court held, inter alia, that Calco (and to a limited extent Gartner) had directly infringed the four patents by making, using, and selling both the first batch resin and the subsequent modified resin, in the POCKET PURIFIER straws; that Gartner induced Calco's infringement; that their infringement was willful; and that Calco and Gartner were liable for unfair competition. These liability judgments formed the basis for the court's award of damages: $420,000 for plaintiffs' lost-profits and $100,000 for loss of marketing opportunities, both amounts being doubled because of the willful

nature of defendants' conduct; reasonable attorney fees based on the exceptional nature of the case under 35 U.S.C. Sec. 285 (1982); and prejudgment interest as...