Yarway Corp. v. Eur-Control USA, Inc.

• Citation: 227 USPQ 352,775 F.2d 268
• Decision Date: 03 October 1985
• Docket Number: No. 85-739,EUR-CONTROL,85-739
• Parties: YARWAY CORPORATION, Appellee, v.USA, INC., and Eur-Control Kalle, A.B., Appellants. Appeal
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Page 268

775 F.2d 268

227 U.S.P.Q. 352

YARWAY CORPORATION, Appellee, v. EUR-CONTROL USA, INC., and Eur-Control Kalle, A.B., Appellants.

Appeal No. 85-739.

United States Court of Appeals, Federal Circuit.

Oct. 3, 1985.

William K. West, Jr., argued, Cushman, Darby & Cushman, Washington, D.C., for appellants. With him on briefs were Sherman O. Parrett and James T. Hosmer.

Trammell E. Vickery and J. Allen Maines, Hansell & Post, Atlanta, Ga., of counsel.

John W. Logan, Jr., argued, Ferrill & Logan, Fort Washington, Pa., for appellee. With him on brief was Thomas M. Ferrill, Jr.

Before BENNETT, Circuit Judge, NICHOLS, Senior Circuit Judge, and NIES, Circuit Judge.

NICHOLS, Senior Circuit Judge.

This is an appeal from the judgment of the United States District Court for the Northern District of Georgia, Shoob, J. presiding, holding that Eur-Control USA, Inc. (Eur-Control) infringed United States Patent No. 3,524,592 (the '592 patent), and that Eur-Control Kalle, A.B. (Kalle) induced infringement. The validity of the patent was not questioned. The court further held that damages should be calculated based on Yarway's lost profits, and that Eur-Control and Kalle had acted in bad faith. Thus the court enhanced damages by one-half, in accordance with 35 U.S.C. Sec. 284, and allowed recovery of attorney's fees under the "exceptional case" provision, 35 U.S.C. Sec. 285.

This court has jurisdiction pursuant to 28 U.S.C. Sec. 1295. We affirm the judgment on infringement and the lost profits award, and reverse the enhancement of damages and attorney's fees award. We also vacate and remand the court's judgment dismissing Kalle's breach of contract counterclaim, but affirm the judgment dismissing the Lanham Act and Georgia Deceptive Trade Practices Act counterclaims.

Background

A. The Relationship of the Parties

The relationship of the parties to this case is somewhat complex and bears a brief explanation here. Appellant Eur-Control is a Georgia corporation engaged in the manufacture and sale of equipment used in the power generating industry, including items known as "desuperheaters" which are the subject of the '592 patent, and which are used to cool superheated steam in conduits. Kalle is a Swedish company also involved in the manufacture of desuperheating equipment. Both Eur-Control and Kalle are owned or controlled by a common parent and thus Eur-Control is neither a wholly-owned subsidiary nor independent of Kalle.

In 1970, the '592 patent, entitled "Device for Introducing Cooling Water Into a Conduit for Superheated Steam," was issued to defendant-appellant Kalle as assignee of the inventor Gustafsson. During the pendency of the '592 application, Kalle entered into a contract with Yarway, the provisions of which are relevant here. Kalle gave Yarway, subject to certain narrow exceptions not pertinent here, the exclusive right to manufacture, use, sell and distribute throughout the United States a desuperheater component described in the contract as the "Nozzle," covered by the '592 application, as well as any modifications or improvements thereon. Yarway in turn agreed to pay Kalle a royalty for each Nozzle it manufactured at a rate of 8 percent of the price at which Yarway could have purchased the product from Kalle. In practice Yarway instead generally purchased the Nozzles from Kalle for resale in the United States as provided by the contract terms. This device is sometimes called in the record the "DA-4" and is widely sold by Kalle outside the United States. The contract also provides that Yarway shall "inscribe upon all Nozzles a reference to the applicable patent number" as well as the phrase "produced under license from [Eur-Control]." By the terms of the contract, either party could terminate the agreement if the other breached any of its terms "and fails to remedy such breach within ninety (90) days after receipt of written notice to do so."

In 1980 Eur-Control began marketing a Model DA-6 desuperheater in the United States in competition with Yarway; in 1981 Eur-Control continued to compete by marketing a newly designed DA-8 Model. Yarway, claiming the DA-6 and DA-8 desuperheaters infringe the '592 patent, thereafter commenced suit charging Eur-Control with infringement and Kalle with inducement of that infringement. In so doing, Yarway, the licensee, placed itself in the unusual, but not extraordinary, position of claiming the United States patent owner was infringing its own patent.

B. The Patent

The '592 patent discloses a cylindrical device with a conical nozzle at one end and a plurality of passages through the cylinder wall. The device, a desuperheater, is basically a valve which provides for a controlled flow of a cooling medium, here water, into superheated steam. The water is incorporated into the superheated steam, absorbs heat, and thereby reduces the steam temperature.

The patent includes three claims. Claim 1 is illustrative.

1. A device for introducing a controlled amount of cooling water into a conduit for superheated steam, comprising a cylinder having a conical nozzle at one end, a plurality of velocity nozzles provided through the cylinder wall to connect the interior of the cylinder to a source of high pressure water located outside of said cylinder, said velocity nozzles being spaced axially and directed substantially tangentially to the cylindrical inner surface of said cylinder, a piston movable to said cylinder to progressively expose said velocity nozzles when moved backwards from a position closing said conical nozzle, said piston having a piston rod connected thereto extending through the rear end of said cylinder connected to an actuating member, the swirling water from said tangential velocity nozzles passing directly through said cylinder and conical nozzle into said steam.

Also relevant to our review is Claim 3.

3. A device as claimed in claim 1 wherein each of said velocity nozzles has a relatively wide inlet portion at the outside of said cylinder and a restricted outlet at the inside of said cylinder.

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

As described with reference to the patent's Figures 1 and 2, a jacket 8 surrounds a cylinder 4 containing a conical nozzle 6. An annular space 7 comprises a reservoir for high pressure steam. A piston 11 is able to move backwardly within the cylinder from the conical nozzle to expose a plurality of "velocity nozzles" 15 which are axially and radially disposed in the cylinder wall. When functioning in response to a demand for desuperheating water, the piston is withdrawn to uncover one or more of the "velocity nozzles;" swirling water then enters, flows on the inner walls of the chambers, and forms a conical curtain of water droplets that evaporate into the steam.

It is a point with this design, though not claimed, that the coolant water does not strike the cylinder wall and thus avoids eroding it. The DA-6 and 8 differ in that the velocity nozzles are not conical in section or as described in claim 3, and are not directed quite so "tangentially" though apparently somewhat at a tangent.

C. The Prosecution History

Of course, as the district court was faced with an infringement action, construction of the claims was necessary, and thus the prosecution history of the patent was and is relevant. The original '592 application, which contained one independent and two dependent claims, was rejected under 35 U.S.C. Sec. 103 in view of the prior art. Thereafter, applicant cancelled the claims and added a new set of three claims, with the new independent claim substantially similar to the original claim 1 except that the term "passages" was changed to "ports." The examiner then issued a final rejection, finding the claims unpatentable under Sec. 103.

The record shows that following the final rejection the inventor, Gustafsson, appearing pro se, participated in an examiner's interview which resulted in an examiner's amendment. Although it is unnecessary to discuss the amendment changes in detail, we note that the examiner added text to the specification concerning the "swirl action" of the water and introduced the term "velocity nozzle" to both the claims and specification, replacing the term "port." We note also that the record provides no evidence from either participant to the examiner's interview regarding the rationale for these changes or for the allowance of the claims. Appellants attached to a motion to reopen the record, or for new findings, an affidavit of the inventor, but the district court properly determined that appellants had not established good cause to reopen. As this affidavit was never admitted as evidence, this court cannot consider it as proof of anything. In any case, it tells what the inventor said to the examiner, not what the examiner thought, which he wisely left to be determined from what he wrote and did. While it seems to say a velocity nozzle of other than the claim 3 configuration would be useless, the affiant's actual acquaintance with the performance of the DA-6 and 8 is not shown and inferentially was nonexistent.

D. District Court Proceedings

The district court rendered an initial judgment following four days of trial and oral argument. In its findings of fact and conclusions of law, the court found that the devices sold by Eur-Control "consist of a combination of elements which, as to their size, function, general shape, manner of cooperation and purpose, correspond to the parts of the desuperheater described in the '592 patent and called for by claims 1 and 2 thereof, and the combination of such parts performs the same function in substantially the same manner to accomplish the same result" as described by the '592 patent. The court also found that as a result of Eur-Control's competition using the infringing devices, Yarway found it "virtually impossible to sell the DA-4 desuperheater [purchased under the contract] within the United States because of the...