Western Elec. Co., Inc. v. Stewart-Warner Corp.
| Decision Date | 02 October 1980 |
| Docket Number | Nos. 79-1129,79-1130,STEWART-WARNER,s. 79-1129 |
| Citation | 208 USPQ 183,631 F.2d 333 |
| Parties | , 1980-81 Trade Cases 63,724 WESTERN ELECTRIC COMPANY, INC., Appellee, v.CORPORATION, Appellant. WESTERN ELECTRIC COMPANY, INC., Appellant, v.CORPORATION, Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Albert E. Fey, New York City (William J. Gilbreth, David J. Lee, Fish & Neave, David Bender, Western Electric Company, Inc., New York City, John S. Davenport, III, William R. Cogar, Stephen A. Northup, Mays, Valentine, Davenport & Moore, Richmond, Va., on brief), for appellant/cross-appellee.
Theodore R. Scott, Chicago, Ill. (McDougall, Hersh & Scott, Chicago, Ill., Thomas G. Slater, Jr., Hunton & Williams, Richmond, Va., on brief), for appellee/cross-appellant.
Before WIDENER and SPROUSE, Circuit Judges, and JONES, District Judge. *
Stewart-Warner Corp., defendant below, appeals from the judgment of the district court finding damages against it on account of patent infringement and deciding that its defenses of misuse and failure to comply with a consent antitrust decree in the district court in New Jersey were not well taken. Western Electric Co., plaintiff in the district court, appeals from the judgment of the district court that it not be awarded attorneys' fees in this as an exceptional case and also increased damages for infringement. We affirm the judgment of the district court in all respects.
Western Electric brought this action for patent infringement, claiming that Stewart-Warner infringed its Derick-Frosch patent No. 2,802,760 issued on August 13, 1957. It is uncontested that Western Electric is the owner of this patent, and infringement is not now contested. Western Electric sought damages from Stewart- Warner for its infringement, and also sought that such damages be increased pursuant to 35 U.S.C. § 284 1 and that it be awarded attorneys' fees pursuant to 35 U.S.C. § 285. 2
The trial below was bifurcated, with the first hearing dealing with validity only and the second with all other issues. Both stages were tried by a Special Master, with the district court adopting the Master's findings pursuant to FRCP 53(e)(2).
Prior to the first hearing, Stewart-Warner challenged the validity of the Derick-Frosch patent on numerous grounds and also claimed noninfringement. At the first hearing, however, Stewart-Warner abandoned its claim of invalidity based on anticipation under 35 U.S.C. § 102 and defended only on obviousness grounds. The first hearing resolved the question of obviousness in Western Electric's favor. That finding is not challenged here. The second hearing resolved all other issues raised. At that stage, Stewart-Warner contended that the patent in suit, although valid, was unenforceable because of Western Electric's misuse of that patent and violation of a court antitrust order in the district court in New Jersey. Both of those issues are argued on appeal. Various aspects of the award of damages were also contested in the second hearing, as is the case here.
The parties are involved in semiconductor manufacturing operations. The Derick-Frosch patent is a process patent that allows the use of silicon in the manufacture of semiconductors. It played an important role in the development of solid state devices and microelectronic components. Since the validity of the patent is not in issue and since a complete understanding of the intricacies of the process is not necessary for understanding the issues raised before us, we will not discuss the details of the patent nor its application in the manufacturing process. Following the briefing schedule, we will first deal with Western Electric's claims of error and then discuss the errors raised by Stewart-Warner.
In deciding Western Electric's claim for attorneys' fees and increased damages, a brief discussion of the dealings between the parties is necessary. For approximately eleven years prior to the institution of this lawsuit, Western Electric and Stewart-Warner had negotiated and disputed over the Derick-Frosch patent. These protracted negotiations proved fruitless, with the parties never able to agree upon a licensing agreement for the patent in suit.
In 1964, negotiations between the parties regarding the licensing of the Derick-Frosch patent began. At that time Stewart-Warner was not manufacturing semiconductors which would have required the use of the Derick-Frosch patent. These negotiations continued at a snail's pace. Western initially offered Stewart-Warner a license under one or all of its patents in its semiconductor portfolio. Later into the negotiations, Western indicated that if it took a royalty free grant-back license under Stewart-Warner's portfolio of patents, it would reduce the royalty rate it charged to Stewart-Warner. Western would not, however, allow a royalty rate reduction based on a grant-back license arrangement if Stewart-Warner sought licensing only under the one Derick-Frosch patent.
Stewart-Warner instead sought a bilateral 3 license under the Derick-Frosch patent with a grant-back license and concomitant royalty reduction to Western. Such an arrangement was sought, says Stewart-Warner, because it only needed a license under the one patent.
Western Electric would not agree to such an arrangement. It would only grant a unilateral license with a 11/2% royalty rate for the Derick-Frosch patent alone. Western refused Stewart-Warner's request, it claims, because it feared that in the future Stewart-Warner might claim that Western coerced it into such a one-sided agreement. Stewart-Warner sought to reassure Western by supplying a letter stating that the agreement was completely its idea and that no coercion was involved, but Western was not so reassured.
Some time after the negotiations were initiated, counsel for Stewart-Warner began to investigate possible patent misuse and antitrust abuse by Western of the Derick-Frosch patent. The theory initially espoused was that such arose from Western's licensing procedure in which it took grant-backs. Such procedure was discriminatory, counsel asserted, because it allowed Western to adjust the net balance royalty rate as it saw fit. Counsel reasoned that Western might have also violated a 1956 antitrust consent decree 4 which required Western to grant licenses for any, some or all of its patents for royalties that are non-discriminatory as between licensees. Counsel argued that refusal by Western to grant a royalty reduction through grant-back licensing when a potential licensee sought a license under one patent while allowing a royalty reduction if the licensee took a license under a package of patents was discriminatory and in violation of the consent decree. Such a violation, he asserted, would be tantamount to patent misuse. 5
The stalemate between the parties continued with Western seeking the portfolio cross-licensing package and Stewart-Warner seeking a bilateral license only on the one patent with grant-back licensing of its portfolio. The parties remained hopelessly deadlocked. Thereupon, Western filed this suit in 1975.
Western argues that the district court erred in not granting its request for increased damages and attorneys' fees. These awards, which are statutorily established, are within the discretion of the trial court to award. Marvel Speciality Co. v. Bell Hosiery Mills, Inc., 386 F.2d 287 (4th Cir. 1967), cert. den. 390 U.S. 1030, 88 S.Ct. 1409, 20 L.Ed.2d 286 (1968); Colgate-Palmolive Co. v. Carter Products, Inc., 230 F.2d 855 (4th Cir.), cert. den. 352 U.S. 843, 77 S.Ct. 43, 1 L.Ed.2d 59 (1956). In fact, the statute permits the granting of attorneys' fees only in exceptional cases. We cannot reverse the district court's findings absent a finding that it abused its discretion in not making the awards that Western requested.
Western contends that circumstances do exist here to show that the trial court abused its discretion in not making the requested awards. It claims that Stewart-Warner knowingly and intentionally infringed the Derick-Frosch patent. It then asserts that Stewart-Warner deliberately delayed the licensing negotiations. Such a delay, it argues, shows bad faith on Stewart-Warner's part so as to justify the awarding of increased damages and attorneys' fees. The district court found that Stewart-Warner was "dilatory in its conduct of the license negotiations with Western." Further, the court found that the license negotiations were one-sided in that Stewart-Warner refused to take a license except under its own terms. The court concluded, however, that Stewart-Warner had not acted in bad faith.
Western contends that this finding is clearly erroneous. It presents no arguments, however, that rebut the district court's determination. We note, as did the district court, that the record shows that Western did not persist in its effort to enforce its patent in that it did not seek to litigate promptly the matter when it became apparent that the negotiations would not be successful. Instead, it chose to wait for years to bring this action. All of this being so, we cannot say that the district court abused its discretion in refusing to award increased damages because of Stewart-Warner's negotiation practices.
Western next claims that increased damages are required because of Stewart-Warner's unreasonable reliance on in-house counsel's opinions regarding patent misuse by Western. That attorney was the chief negotiator for Stewart-Warner in its licensing negotiations with Western. During the process, he became concerned that the Derick-Frosch patent was unenforceable. He communicated this belief in at least three in-house memoranda, sent in 1966, 1969, and 1970. All three of these memoranda were sent to D. A. Potter, Vice President of Stewart-Warner, with the 1966 memo also addressed to J. D. Coffey, General Manager of the Microcircuits Division. Copies of all...
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