Petition — Minnesota Mining & Manufacturing Co. v. Velo-Bind, Inc.

Supreme Court brief1981

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In the Supreme Co —

OF THE

United States

Ocroser TERM, 1981

VELo-Bixp, Incorporatep, a California corporation,

Petitioner,

vs.

Minnesota Mininc Anp Manvuracturtnc Couraxx,

a corporation ;

3M Bustyess Propucts Saues, Ixc., a corporation;

Ro-BIND Corporation, a corporation; and

RAL Inpustries, a corporation,

Respondents.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

James K. Haynes

Of Orrick, Herrincton &

SurTcuirre

A Professional Corporation

600 Montgomery Street

San Francisco, CA 94111

Telephone: (415) 392-1122

Counsel for Petitioner

Jutian CAPLAN

Greco, Capitan & Hiddixs

800 Menlo Avenue

Suite 200

Menlo Park, CA 94025

Telephone: (415) 327-3660

Of Counsel for Petitioner

BOWNE-PERNAU WALSH ©* 190 NINTH ST. © &.F., CA 894103 © (418) 864-2300

QUESTIONS PRESENTED

First Question: Supplies Damages

Velo-Bind holds valid patents for a machine for binding

documents or books, usually in an office environment. The

machine uses certain supplies, principally unpatented

plastic binding strips specifically referred to in the machine

patents. Velo-Bind manufactures and sells the patented

binding machines, as well as the plastic binding strips,

which are useful only with its machines. It was and is the

sole manufacturer of such strips.

3M infringed Velo-Bind's patents by manufacturing and

selling a competing binding machine, which uses plastic

strips of a different design, manufactured by 3M.

About one-quarter of Velo-Bind's resulting damages was

for lost profits on sales of machines which it was deprived

of by 3M’s infringement, and the other three-quarters for

lost profits on the sales of strips which it would otherwise

have sold for use with its displaced machines.

The first question is whether Velo-Bind’s compensable

damages are limited to the lost profits on machines or

whether they include the lost strips profits, as well. Stated

abstractly: Is a patentee entitled to an award for all of its

foreseeable damages demonstrably resulting from an in-

fringement, as Section 284 of the Patent Law (35 U.S.C.

§284) indicates and as the Second Circuit and the Court

of Claims have held—or only for lost profits on displaced

sales of the patented product itself, as the Ninth Circuit

held in this case? In other words, is it the law that “in-

fringement pays” where the infringer keeps supplies

profits resulting from his infringement, while his victim

is without redress for his corresponding lost supplies

profits?

Second Question: Increased Damages and Attorneys’ Fees

3M knew of Velo-Bind’s patents, and in fact had unsuc-

cessfully attempted to obtain a license under them, but

elected to market its competing machine, anyway, after

first seeking to obtain indemnification for its infringement.

3M’s infringement put into peril Velo-Bind's continued

existence. When sued, 3M asserted various questionable

defenses, one of which was the subject of a directed ver-

dict, another of which was characterized by the District

Court as “strain[ing] credulity,” and others of which were

abandoned on appeal.

Even after its “defenses” had been rejected by the court

and the jury (but before a ruling on its post-trial motions)

3M continued to infringe, in fact accelerating its marketing

program by making sales below cost. It ceased only on the

eve of entry of judgment.

The second question comes in three parts: (1) Are such

circumstances so aggravated that the trial court must exer-

cise its discretion to award increased damages and attor-

neys’ fees to Velo-Bind pursuant to Sections 284 and 285

of the Patent Law (35 U.S.C. §§ 284, 285)? (2) If not, must

the court justify a denial with appropriate findings of fact

under Fed.R.Civ.P. 52(a) so that a reviewing tribunal will

have some way of knowing whether the court's discretion

was lawfully exercised? (3) Was it permissible for the

Court of Appeals to “take away” three-quarters of Velo-

Bind’s damages without remanding the case to the District

Court to consider that changed circumstance as it relates

to its exercise of discretion whether to award increased

damages and attorneys’ fees? Stated abstractly: Are in-

creased damages and attorneys’ fees a gift that a court

can bestow on one patentee and decline to bestow to an

equally deserving, equally aggrieved patentee, or, alter-

natively, must the courts follow defined legal standards,

and must they demonstrate that they have done so by mak-

ing findings of fact pursuant to Rule 52(a) of the Federal

Rules of Civil Procedure?

iii

TABLE OF CONTENTS

Page

TEL NS RET SER i

RL EARS Re ce me eran sonar iii

111 v

. AE RRC ee oe 1

„„ 8 2

Statutes and Rule Involved 2

e ee Pv Pa 3

Reasons for Granting the Writ 8

V ears cctececstiscnstitinstitivnihimschiceasaicalits 8

A. The Decision Is in Conflict with Other Fed-

eral Courts, Including the Court of Appeals

for the Second Cireuii“' 8

B. This Case Presents an Important, Unre-

solved Question of Federal Law .................... 17

II. Trebling and Attorneys’ Fees 17

A. The Standards to Be Applied in Trebling

or Otherwise Increasing Damages or De-

clining to Do So and in Awarding Attor-

neye’ Fees or Declining to Do So Involve

Important Questions of Federal Law Which

this Court Should Settlle 18

Tann or ConTENTS

Page

B. Certiorari is Appropriate to Determine the

Unresolved and Important Issue of Whether

Fed.R.Civ.P. 52(a) Requires Findings of

Fact on Issues Which Are Raised by Mo-

tion But Tried as Questions of Face 22

Conclusion 25

Appendix

(Opinion and Judgment of Court of

Appeals) ak Appendix A

(Order Denying Petitions for Rehearing) ....Appendix B

(Order on Motions for Permanent Injunction, Treble

Damages, and Attorneys’ Fees) ................ Appendix C

(Judgment of District Court Appendix D

TABLE OF AUTHORITIES CITED

Cases

Page

American Cyanimid Company v. Sharff, 309 F.2d 790

6811! 24

American Safety Table Company v. Schreiber, 415

F.2d 373 (2d Cir. 1969), cert. denied, 396 U.S. 1038

6 9, 10, 11, 12, 13, 15, 17

Armstrong v. Emerson Radio & Phonograph Corp.,

132 F.Supp. 176 (S. D. N. V. 1955) 21

Autographic Register Co. v. Sturgis Register Co., 110

F.2d 883 (6th Cir. 1940) 11

Bigelow v. R. K. O. Pictures, 327 U.S. 251 (1946) 12

Bowers v. E. J. Rose Mfg. Co., 149 F.2d 612 (9th Cir.

1945), cert. denied sub nom. Fisher v. Bowers, 326

U.S. 753 (1945) ...... 23

Coleman Company v. Holly Manufacturing Company,

269 F.2d GGO (Sth Cir. 1886999975757 19

Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S.

176 (1980) ae

Electric Pipe Line v. Fluid Systems, 250 F.2d 697 (2d

„ — 10

General Electric Company v. Sciaky Bros., Inc., 415

F.2d 1068 (6th Cir. 1969) —

Hobbs & Company, Inc. v. American Investors Man-

agement, Inc., 576 F.2d 29 (3d Cir. 1978) ................ 24

Horizons Titanium Corp. v. Norton Co., 290 F.2d 421

(Ist Cir. 1961) 24

Interpace Corp. v. City of Philadelphia, 438 F.2d 401

1. SR ae ee eee 25

Jenn-Air Corp. v. Penn Ventilator Co., Inc., 185

U.S.P.Q. 410 (E. D. Pa. 1975) 10

Tasie or Autuorities CrTeD

Cases

Page

King v. Wall & Beaver Street Corporation, 145 F.2d

.. 22-23

Lea v. Cone Mills Corp., 467 F.2d 277 (4th Cir.

0 24, 25

Leesona Corp. v. United States, 599 F.2d 958

(Ct. Cl. 1979), cert. denied, 444 U.S. 991

1 9-10, 11, 12, 13, 15, 17

Livesay Window Company v. Livesay Industries, 251

F. 2d 469 (5th Cir. 1958) .................... ice “TD

Overman Cushion Tire Co. v. Goodyear Tire & Rubber

Co., 66 F.2d 361 (2d Cir. 1933), cert. denied, 290

i . 20

Paper Converting Mach. Co., Inc. v. FMC Corp., 432

. , 10

Perry v. Baumann, 122 F. 2d 409 (9th Cir. 1941) ........ 23

Peterson Filters & Enginering Co. v. Envirotech

Corp., 178 U.S.P.Q. 337 (D. Utah 1973) ................... 10

St. Regis Paper Co. v. Winchester Carton Corp., 410

F.Supp. 1304 (D. Mass. 197) — 19

Thomas v. Peyser, 118 F.2d 369 (D.C. Cir. 1941) ........ 22

Union Tool Company v. Wilson, 259 U.S. 107

ER ty SS a 16

United States v. Minnesota Mining & Mfg. Co., 1969

Trd. Cas. f 72,865 (N. D. III. 1969) ......... 20

United States v. Minnesota Mining & Mfg. Co., 249 F.

ie,, 20

Von Der Heydt v. Rogers, 251 F.2d 17 (D.C. Cir.

rr 24

vii

TanLx or AutHorities Crrep

Cases

Page

Wagner Sign Service v. Midwest News Reel Theatres,

119 F.2d 929 (7th Cir. 1941), appeal dismissed (pur-

suant to stipulation) 314 U.S. 702 (194177 16

Westinghouse Electric & Mfg. Co. v. Wagner Electric

& Mfg. Co., 225 U.S. 604 (1912) .......... 1 a

Williamson v. Tucker, 645 F.2d 404 (Sth Cir. 1981) ....23-24

Constitution, Statutes and Rules

US. Const. Article I, Geotiom 8 ..................ccccccccccseceeeeeesss 17

28 U.S. C.:

Z eo

r i adenine 3

— — — ; 10

Patent Law (35 U.S.C.):

Section 284 one oa i, ii, 2, 14, 17, 21, 22

. — ii, 2, 18, 21, 22

Federal Rules of Civil Procedure:

EEE" Se ie 3, 23, 24

rr 23

Rule 41 (b) „ 3

.. ii, 2-3, 22, 23, 24, 25

Rule 56 we 3, 23

1 ee 2

Other Authorities

H.R. Kep. No. 1587, 79th Cong., 2d Sess. 1-2 (1946) 14

S. Rep. No. 1503, 79th Cong., 2d Sess. 2 (1946) 14

5A Moore’s Federal Practice 22, 23

3 White, Patent Litigation: Procedure & Tactics 14-15

9 Wright & Miller, Federal Practice and Procedure .... 23

In the Supreme Court

OF THE

United States

Octroser Term, 1981

Vevo-Bixp, [xcorroratep, a California corporation,

Petitioner,

Vs.

Mix XESOTA Mininc Anp Manuracturtne Company,

a corporation ;

3M Busixxss Propucts Sates, Ixc., a corporation;

Ro-Brxp Corporation, a corporation; and

RalLx Lypustries, a corporation,

Respondents.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circui:

Velo-Bind, Incorporated petitions for a writ of certiorari

to review the decision of the United States Court of Ap-

peals for the Ninth Circuit reversing a portion of the dam-

ages awarded, and affirming the denial of increased

damages and attorneys’ fees.

OPINIONS BELOW

The opinion of the Court of Appeals (Appendix A) is

reported at 647 F.2d 965. The order denying the parties’

petitions for rehearing (Appendix B) is not reported. The

order of the District Court denying petitioner’s motions for

increased damages and attorneys’ fees (Appendix C) and

the Judgment entered in the District Court (Appendix D)

are also not reported.

JURISDICTION

The opinion of the Court of Appeals was filed on June

8, 1981. Timely petitions for rehearing were denied on

July 14, 1981. Jurisdiction of this Court is invoked under

28 U.S.C. § 1254(1).

STATUTES AND RULE INVOLVED

Section 284 of the Patent Law (35 U.S.C. § 284) provides:

“Upon finding for the claimant the court shall award

the claimant damages adequate to compensate for the

infringement, but in no event less than a reasonable

royalty for the use made of the invention by the in-

fringer, together with interest and costs as fixed by

the coart.

“When the damages are not found by a jury, the

court shall assess them. In either event the court may

increase the damages up to three times the amount

found or assessed.

“The court may receive expert testimony as an aid

to the determination of damages or of what royalty

would be reasonable under the circumstances.”

Section 285 of the Patent Law (35 U.S.C. § 285) provides:

“The court in exceptional cases may award reason-

able attorney fees to the prevailing party.”

Federal Rule of Civil Procedure 52(a) provides:

“In all actions tried upon the facts without a jury

or with an advisory jury, the court shall find the facts

specially and state separately its conclusions of law

thereon, and judgment shall be entered pursuant to

Rule 58; and in granting or refusing interlocutory in-

junctions the court shall similarly set forth the find-

ings of fact and conclusions of law which constitute

the grounds of its action. Requests for findings are not

necessary for purposes of review. Findings of fact

shall not be set aside unless clearly erroneous, and

due regard shall be given to the opportunity of the

trial court to judge of the credibility of the witnesses.

The findings of a master, to the extent that the court

adopts them, shall be considered as the findings of the

court. If an opinion or memorandum of decision is

filed, it will be sufficient if the findings of fact and

conclusions of law appear therein. Findings of fact

and conclusions of law are unnecessary on decisions

of motions under Rules 12 or 56 or any other motion

except as provided in Rule 41(b).”

STATEMENT OF THE CASE

Jurisdiction

This action by Velo-Bind! against 3M“ for patent in-

fringement was brought pursuant to 28 U.S.C. § 1338(a)

in the United States District Court for the Northern Dis-

trict of California.

Velo-Bind’s Ciaims and Injuries

The patents are for a machine capable of binding docu-

ments or books, usually in an office environment. Pl. Exs. 1,

2. The machine uses certain unpatented supplies, princi-

pally plastic strips to effect the bind. Tr. 158 :23-160:5. The

strips are expressly mentioned in the machine patents and

are useless except with the machine.

Velo-Bind and 3M were the only manufacturers of the

patented machine. Velo-Bind was and is the only manufac-

turer of strips usable with the Velo-Bind machine (Tr.

160:11-21), and 3M was and is the only manufacturer of

strips usable with the 3M machine.

The full name of Velo-Bind is Velo-Bind, Incorporated. It has

no parents, subsidiaries or affiliates.

*The full name of 3M is Minnesota Mining and Manufacturing

Company. For simplicity, the other defendants are generally not

separately referred to. Velo-Bind believes that it is undisputed,

however, that the issues as to 3M are the same as to the other

defendants-respondents.

About one-quarter of Velo-Bind’s damages was for lost

profits on machine sales it was deprived of by 3M’s in-

fringement. About three-quarters were attributable to lost

profits on supplies for the Velo-Bind machine which Velo-

Bind would have sold but for 3M’s infringement. Velo

Bind sought to recover all of its damages, including lost

profits on machines and lost profits on plastic binding

strips.

Trial and Appeal

After a jury trial in which Velo-Bind’s patents were

specifically found to be valid and infringed, Velo-Bind was

awarded a verdict for its lost profits on both its displaced

machine sales and its displaced sales of supplies for use

with its machines. The District Court denied 3M’s motions

for judgment n.o.v. and a new trial. Judgment was entered

for the full monetary damages and an injunction as well.

3M appealed to the Court of Appeals for the Ninth Cir-

cuit, which affirmed on the issues of validity and infringe-

ment but reduced the judgment from $3,934,333 to $913,578,

eliminating the damages for lost strips sales.

Velo-Bind cross-appealed because the District Court had

denied its motions for trebling or otherwise increasing its

damages and awarding it attorneys’ fees, and the Court of

Appeals affirmed that, too. To put that part of the case in

context, it is necessary to go back to a time four years

before 3M began selling its competing machine.

Facts Regarding zus State of Mind

In 1971, while its patent applications were pending, Velo-

Bind was looking for a partner with resources adequate to

help it exploit its technology, and to that end it entered

into negotiations with 3M. Tr. 131:10-132:3; 135 :6-14; 717:

3-10. After investigating Velo-Bind’s patent applications

and searching prior art, 3M sought to obtain the right to

a license under such patents as Velo-Bind might receive.“

°E.g., PLExs. 32, 33, 37, 38, 41, 43; see PLEx. 39, attached

“Agreement,” pp. 1-2, 5-6; Tr. 138:11-139:18; 718:12-17.

At no time did 3M intimate, let alone state, that it had the

slightest question concerning the validity or efficacy of

Velo-Bind’s claim to patent rights. Tr. 142:5-20; 718:3-11.

To the contrary, 3M commented favorably on Velo-Bind's

applications, mentioning as a minor problem only one point,

a point not involved in this case. Pl.Exs. 32, p.3, 41; Tr.

1222:8-23. At no time did 3M suggest that any of the

validity defenses that it was later to assert in this case

had any merit, or, for that matter, that such defenses even

existed.*

Velo-Bind rejected 3M’s proposal, and commenced suc-

cessfully manufacturing and marketing machines based

upon its patent claims, and also unpatented plastic bind-

ing strips for use with its machines.

When Velo-Bind’s first patent formally issued, 3M’s

predecessor, Rally/Ro-Bind,* set out to develop a similar

system, and did develop a practically identical machine in

all important respects, which used plastic strips of a dif-

ferent design.“

Rally/Ro-Bind then entered into negotiations with 3M

to sell its binding business to 3M. 3M was concerned about

infringing Velo-Bind’s patents, however. 3M and Rally/Ro-

Bind negotiated with one another, each with the objective

of saddling the other with as much responsibility as pos-

sible for the consequences of infringement of Velo-Bind’s

patents.’ At one time, 3M rejected a draft agreement with

‘Tr. 142:5-20; 718:3-11; 1220:25-1293:11; PLExs. 27, p. 2 (no

response by 3M to substance of letter), 37, p. 1.

This name refers to two affiliated corporations, defendants and

respondents, Rally Industries and Ro-Bind Corporation, which were

subsequently merged inte 3M.

Cl. Rec. 141, pp. 10-12, J 48, 53-56; Tr. 1334:22-25; 1336:1-25;

1839:23-1846:15; 1848:14-1852:24; 1585:10-1589:1; Pl. Ex. 1652.

pl. Exs. 124, Agreement, p. 8, subsection (g); 125 “Agreement,”

p. 6, including handwritten note of Jarrett Folley; 128, p. 1; 1699,

p. 6, subsection (h) and Exhibit D thereto.

the notation, “No—need representation that [Velo-Bind

patent] doesn’t conflict & if so then get offset for expenses

& damages.“

Rally/Ro-Bind rejected 3 M's demand that it make a rep-

resentation of non-infringement. In fact, in the merger

agreement ultimately reached, Rally/Ro-Bind expressly re-

fused to represent that its machine did not infringe Velo-

Bind’s patent. PI. Ex. 1699, pp. 17-18, § 4.17, and Exhibit D

thereto. The agreement also specifically provided that, if

Velo-Bind charged 3M with infringement of that patent, 3M

was free to negotiate a license from Velo-Bind, and the cost

of defending against infringement and the cost of royalties

paid to Velo-Bind would be divided evenly between 3M

and Rally/Ro-Bind. Pl. Ex. 1699, p.6, § 1.05(h), and Exhibit

D thereto.

Although 3M’s inside attorney, Smith, during the nego-

tiations rendered written opinions about the Rally/Ro-Bind

type strips that 3M would be manufacturing and selling, he

carefully avoided ever including in his opinions anything

to suggest that the Rally/Ro-Bind machines would not in-

fringe Velo-Bind’s patents. Special Exs. E and F, hearing

of April 20, 1979. During this period, 3M failed to seek the

advice of independent, outside counsel. Tr. 2629 :17-2632 :12;

2662 :13-17.

Pl. Ex. 125, p. 6. 3M wanted indemnification for damages from

infringing Velo-Bind’s patents. As stated during these negotiations

by 3M’s negotiator, Jarrett Folley, to Rally / Ro-Bind's attorney,

Larry W. Sonsini: “It was my understanding that you would in-

clude a representation coverning (sic) infringement of the Apple-

guard (sic) patent. What we desire is a representation to the effect

that the Appleguard (sic) patent does not infringe and if it would,

3M could offset expenses and damages or royalties against the

earnout. It is Jim Smith’s [3M’s in-house patent counsel] opinion

that this provision was agreed upon. I recall our discussion and

note that you have deleted my former paragraph (g) but have

not included any representation concerning the Appleguard (sic)

patent.” Pl. Ex. 128, p. 1.

When it commenced to sell its infringing machines and

was promptly sued, 3M asserted numerous questionable de-

fenses. Velo-Bind, 3M contended, had not had clean hands

in applying for its patents, requiring that they be voided.

CI. Rec. 141, p.21, J 58. The result: directed verdict and no

appeal. 3M asserted, also, that not all of the persons who

were inventors were named in the principal application, re-

quiring that the patent be voided. CI. Rec. 141, p.19, J 39.

Result: a contrary jury verdict and no appeal. 3M further

argued that subsequent patents awarded to it for new de-

velopments by Rally/Ro-Bind prevented recovery by Velo-

Bind. Result: contrary instructions and no appeal. 3M’s

principal defense, at least in terms of time, effort and

words, was that a 1911 purse-making machine invention an-

ticipated Velo-Bind’s invention. CI. Rec. 141, p.18, 33. Re-

sult: a contrary jury determination and a statement by the

District Court, quoted by the Court of Appeals, that 3M’s

contention “strain[ed] credulity.” Cl. Rec. 273, p.3; Appen-

dix A, p.12.

While the trial was underway, 3M admitted to selling its

machines at prices that were lower than 3M’s costs. Tr.

1938 :9-15; CI. Rec. 244, Schedule A, p. 30; Tr. 1376 :16-1377:

13. These sales continued well after the court ruled against

3M on its motions for a directed verdict—and even after

the jury returned a verdict for Velo-Bind. Tr. 2621:21-

2622 :23.

This conduct exposed Velo-Bind, a small, one product

line company, to the threat of extinction. The record is void

of any evidence, however, that 3M, a vastly larger company,

gave any thought at all to the morality of its conduct. 3M’s

only concern was whether it could turn a profit. The answer

to that question—whether infringement pays when the prin-

cipal profits result from the sales of unpatented supplies

for use with the patented machine—depends in large part

upon the resolution of the damages issues to which this

petition is directed.

REASONS FOR GRANTING THE WRIT

SUPPLIES DAMAGES

About one-quarter of Velo-Bind’s actual damages was for

lost profits on its reduced sales of patented machines. About

three-quarters were for lost profits on its reduced sales of

unpatented supplies usable only with its machines, mostly

plastic binding strips. The strips are expressly mentioned

in Velo-Bind’s machine patents, and they are clearly non-

staples which are substantially worthless except when

used with one of the patented machines.

Although these supplies damages were foreseeable, were

proximately caused by 3M’s infringement and represented

the bulk of Velo-Bind’s injury, the Court of Appeals denied

Velo-Bind any compensation for them.

In effectively concluding that the courts were powerless

to make Velo-Bind whole, the Court of Appeals brought

itself in conflict with the decisions of at least one other

Court of Appeals, the Court of Claims and numerous Dis-

trict Courts. Moreover, this case presents an important un-

resolved question of federal law which should be settled

by this Court.

A. The Decision Is in Conflict with Other Federal Courts,

Including the Court of Appeals for the Second Circuit.

Until the decision of the Court of Appeals in this case,

it seemed to have become settled law that the correct ap-

proach for damages for lost profits on unpatented items,

where those damages were proximately caused by infring-

ing sales of patented items, was the “entire market value

rule.” Under that rule, where closely related unpatented

items are designed for use with the patented items and

where the value to the patentee from the sale of the patented

items as a commercial reality includes the sale of the ma-

terials used with the patented items, the patentee is entitled

to recover damages as to both the patented and unpatented

items.

The leading case on the entire market value doctrine is

American Safety Table Company v. Schreiber, 415 F.2d

373 (2d Cir. 1969), cert. denied, 396 U.S. 1038 (1970).

American Safety Table involved a patented die assembly

and certain unpatented tables. The patented assembly,

which rested on an unattached table or frame, could be

removed from the unpatented tables and replaced by an-

other die. The die assembly and the tables were commonly

sold in conjunction with each other but were sometimes

sold separately in the market. The patented assembly and

the unpatented table were used together to perform the

desired work.

As noted by the Second Cireuit:

“The master and district court found that the un-

patentable table was ‘useless’ and ‘unmarketable’ with-

out the patented die assembly. On this basis the entire

market rule was applied in awarding damages for the

sales of all tables.” Jd. at 377.

The Second Circuit agreed that the entire market value

rule was properly applied. Id.

The entire market value rule was recently reaffirmed in

a case involving unpatented supplies used with patented

batteries. Leesona Corp. v. United States, 599 F. 2d 958 (Ct.

Cl. 1979), cert. denied, 444 U.S. 991 (1979). There, the

plaintiff was the patentee and manufacturer of a patented

rechargeable battery, which was used for military pur-

poses. The battery was recharged by replacing its 22 un-

patented anodes. It was estimated that, in order to make

the battery usable for military purposes, the 22 unpatented

anodes and the unpatented cathodes and blower covers

would be frequently replaced during the battery’s lifetime.

The government purchased 2,138 batteries and the

anodes, cathodes and blower covers from a third party, and

Leesona sued the government for patent infringement, At

issue was the question of the reasonable compensation to

be paid Leesona under 28 U.S.C. § 1498. The government

argued that the anodes, cathodes and covers, as unpatented

supplies, should be excluded from the compensation base,

while Leesona argued that they should be included under

the entire market value rule since such supplies were neces-

sary for the battery’s operation.

In discussing the entire market value rule, the Court

observed:

“Under the market value rule, it is not the physical

joinder or separation of the contested items that de-

termines their inclusion in or exclusion from the com-

pensation base, so much as their financial and market-

ing dependence on the patented item under standard

marketing procedures for the goods in question.” 599

F.2d at 974. (Emphasis added.)

The Leesona court noted that the design of the battery

was such that each of the 22 anodes for each patented bat-

tery would probably be replaced 50 times during the “life

cycle” of the battery. Id. at 975. Also, as with the un-

patented supplies in this case, the supplies in Leesona “were

designed to operate in conjunction with” the patented item.

Id. Compensation for the supplies was thus allowed.

A number of other courts have endorsed the American

Safety Table approach to the entire market value rule. See

Paper Converting Mach. Co., Inc. v. FMC Corp., 432 F.

Supp. 907 (E.D. Wis. 1977); Peterson Filters d Engineer-

ing Co. v. Envirotech Corp., 178 U.S.P.Q. 337 (D. Utah

1973); Jenn-Air Corp. v. Penn Ventilator Co., Inc., 185

U.S.P.Q. 410, 418 (E. D. Pa. 1975). See also Electric Pipe

Line v. Fluid Systems, 250 F.2d 697 (2d Cir. 1957).

The sales and profits that Velo-Bind lost on supplies as

a direct result of the infringing activities of 3M fall

squarely within the ambit of the entire market value rule.

The sale of a Velo-Bind machine carries with it a substan-

tial revenue stream in the form of continuing sales of sup-

plies, principally strips, for use in the machines. These

supplies are specially made for use in the machine. They

have little or no market value in the absence of the patented

machines, yet are essential to the binding of books and

documents on the machines.

It is a iact of the marketplace that Velo-Bind is the sole

supplier of the strips used with its binding machines. Thus,

when 3M takes a machine sale away from Velo-Bind, it

also takes away a continuing series of profitable sales of

strips because instead of buying Velo-Bind-type strips, the

purchaser of a 3M machine buys 3M-type strips manu-

factured by 3M. Those are the commercial realities. The

entire market value doctrine rests on commercial realities.

Under the entire market value doctrine, Velo-Bind is en-

titled to recover from 3M the profits it lost on supplies

sales. This recovery is essential in order even to attempt

to restore Velo-Bind to the pecuniary position it would

have been in absent 3M’s infringement.

3M may contend that this case is not in conflict with the

modern, just rule of American Safety Table and Leesona,

because this case can be distinguished. Analysis, however,

shows that this case cannot be reconciled with American

Safety Table and Leesona.

The Ninth Circuit in this case in a murky passage sug-

gested that Velo-Bind’s request for supplies damages was

“very similar” to patent misuse. The Court apparently

meant that seeking damages for unpatented supplies was

similar to Velo-Bind conditioning the sale of patented

machines upon the purchase of unpatented supplies only

from it, that is, unlawful “tying.” That is not at all

correct, however. Not even 3M has ever suggested that

Velo-Bind tied the sale of its strips or other supplies to

the sale of its machines.

This misconception had its genesis with Autographic Register

Co. v. Sturgis Register Co., 110 F.2d 883 (6th Cir. 1940), a case

relied upon by the Ninth Circuit.

It is true that Velo-Bind could not provide absolute as-

surance that it would have sold all of the supplies pro-

jected in its damages evidence, unless it compelled

purchasers of its machines to buy supplies from it. Velo-

Bind did not take the position, however, that it was in-

conceivable that sometime in the future somebody might

decide to manufacture Velo-Bind-type strips and sell them

to owners of Velo-Bind machines, thereby reducing the

strips revenues and profits projected from the sale of each

machine. But to admit that possibility was not incon-

sistent with Velo-Bind’s burden in proving damages. It

did not have to prove its supplies damages with absolute

certainty.“ It merely had to provide a reasonable estimate

based on logical, plausible premises supported by evi-

dence, and that it did. It was certainly reasonable for Velo-

Bind to project that it would continue to sell strips and

other supplies at the same rate per machine as it had in

the past—or to put it another way, that it would continue

to be the sole manufacturer and seller of strips usable in

its machines, as it had been for many years, even though

it was conceivable that someone else would later enter the

market.

Once that is understood, it becomes clear that patent mis-

use could not possibly be an issue in this case.

What is important in assessing whether a conflict in the

circuits exists, however, is that, if the “patent misuse”

criticism were valid, it would be equally applicable to Amer-

ican Safety Table, Leesona and the other cases enunci-

ating the entire market value rule. The courts in those

eases, though, did not even mention patent misuse, ob-

The standard to be met is set forth in Bigelow v. R. K. O. Pic-

tures, 327 U.S. 251, 265 (1946), and Livesay Window Company v.

Livesay Industries, 251 F.2d 469, 472 (5th Cir. 1958). Such stan-

dard requires the infringer to bear the risk of uncertainty created

by his conduct and does not require the pateutee to prove its

losses with “scientific accuracy.”

viously because they correctly concluded that awarding

damages in accordance with the entire market value rule

did not explicitly or implicitly condone patent misuse.

The existence of a conflict between American Safety

Table and Leesona, on the one hand, and this case, on the

other, is further demonstrated by the effort of the Ninth

Circuit to distinguish the entire market value cases. That

effort is based on the supposed fact that American Safety

Table and Leesona involve unpatented parts attached to

a patented assembly, not consumable supplies. Putting

aside the fact that the purported distinction rests upon a

very questionable characterization of the Leesona facts, it

fails because it is not grounded in logie but is instead

wholly artificial.

First, it is impossible to imagine the policy served by

allowing a patentee to recover damages for unpatented

component parts, unpatented repair parts, and unpatented

supplies used in a process patent,“ while banning recovery

for unpatented supplies usable only in conjunction with a

patented machine. In each of these cases the inquiry should

focus on the substantive injury to the patentee, not merely

the form of injury. It is submitted that in each of these

cases the injury is substantively identical—loss of sales of

unpatented material intended for and usable only with the

patented device. It is important that the supplies for which

Velo-Bind sought damages are not merely incidental to or

remotely connected with the patented binding machine;

rather, the supplies, such as the binding strips, are so in-

timately connected with Velo-Bind’s patented machines

that they are expressly mentioned in the patents found valid

and infringed by 3M.

Second, Congress has prescribed the measure of damages

as those “adequate to compensate for the infringement.”

"See Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S. 176

(1980).

35 U.S.C. 5 284. Commenting on this language, both the

Senate Report and the House Reports stated that it was

the intention of Congress “to make the basis of recovery

in patent-infringement suits . . . any damages the com-

plainant can prove.” (Emphasis added.) H.R.REP. NO.

1587, 79th Cong., 2d Sess. 1-2 (1946); S.REP. NO. 1503,

79th Cong., 2d Sess. 2 (1946). The legislative purpose—to

compensate the injured party for all damages proxi-

mately caused by the tortious conduct of the infringer—is

obvious. The standard, of course, is hardly new, and, in

fact, is the general standard for measuring damages

caused by tortious conduct. There is no support for the

proposition that the legislative purpose would be served

by excluding damages for unpatented supplies usable

only with the patented device from coverage under the

patent laws, so long as chose damages are adequately

proven.

The Court of Appeals added three make-weight argu-

ments for its conclusion. First, it suggested that the entire

market value rule was an exception to a more general rule

that, where a patent creates only part of the infringer’s

profits, recovery is limited to that part of the profits, which

must be apportioned between those created by the patent

and those not so created. The Ninth Circuit cited Westing-

house Electric € Mfg. Co. v. Wagner Electric & Mfg. Co.,

225 U.S. 604, 614-15 (1912). There, however, the Court of

Appeals was confused between the former law that per-

mitted the patentee to recover the infringer’s profits, and

the present law, under which Velo-Bind proceeded, that

allows the patentee to recover his own lost profits. As

cogently stated by White in his patent law treatise: “[T]he

justification for allocating or apportioning the infringer’s

profits has no application when the award is based on the

patent owner’s lost profits. The patent owner can be made

whole only by awarding the profits which the evidence shows

he would have made in the absence of the infringer’s un-

lawful activities.” 3 White, Patent Litigation: Procedure

& Tactics, pp. 9-25 to 9-26. Furthermore, “apportionment”

would have been equally easy in American Safety Table

and Leesona, but there the courts recognized that it would

have been unjust to award the patentee only a portion of

his lost profits.

Second, the Ninth Circuit suggested, without citation of

case law, that lost supply sales “would appear” to be “simi-

lar” to indirect consequential damages that are not recover-

able. The same, however, could have been said about

American Safety Table and Leesona. These supplies dam-

ages, in fact, were clearly foreseeable and immediate.

Third, the Court of Appeals suggested that Velo-Bind’s

supplies damages might be speculative. In doing so, it over-

looked the fact that, for the period from when 3M com-

menced its infringement in 1975 through the trial, Velo-

Bind conclusively established that it was the only supplier

of strips and other supplies for its binding machines. The

damages through the middle of 1978, when the trial took

place, were not based on a mere assumption that Velo-Bind

would continue to be the sole supplier of its strips, but

were based upon the proven fact that Velo-Bind was the

only supplier. As to these amounts, a total of $229,072

(see Pl. Ex. 194), the supplies damages are not even ar-

guably conjectural.

As to the remaining supplies damages, those not yet

incurred at the time of trial, Velo-Bind provided reason-

able projecticrs based upon historic sales, as described in

the testimony of highly qualified witnesses.“ 3M presented

not a shred of evidence to rebut Velo-Bind’s proof. (In fact,

to this date Velo-Bind remains the sole supplier of its

strips.)

That was more than adequate to meet the burden of a patentee

in establishing damages for infringement. See footnote 10, supra.

The Court of Appeals suggested that Velo-Bind’s pro-

jection of future lost supplies profits might be speculative

because:

Those who continue to use the 3M machine may be

subject to suit for infringement; those who supply or

maintain them may be subject to suit for contributory

infringement.”

Velo-Bind, however, believes that any attempt to stop

the use of the outstanding machines would be met by 3M

asserting the rule of Wagner Sign Service v. Midwest News

Reel Theatres, 119 F.2d 929 (7th Cir. 1941), appeal dis-

missed (pursuant to stipulation) 314 U.S. 702 (1941), as

follows:

“(I]t is the generally accepted doctrine that where a

patentee has been fully compensated by an infringing

manufacturer for the manufacture and sale of the in-

fringing device, the patentee has no recourse against a

customer of such infringing manufacture who is solely

a user of such device. As was stated in Union Tool

Company v. Wilson, 259 U.S. 107, 113, 42 S.Ct. 427,

429, 66 L. Ed. 848: ** * A patentee, in demanding

and receiving full compensation for the wrongful use

of his invention in devices made and sold by a manu-

facturer adopts the sales as though made by himself,

and therefore necessarily licenses the use of the de-

vices, and frees them from the monopoly of the patent.

„„ 119 F. ad at 930."

The question is whether Velo-Bind will obtain all of its

foreseeable damages proved with reasonable certainty, or

only a minor fraction of such damages. The Ninth Circuit

held that the courts are powerless to give judgment for

more than a small fraction of Velo-Bind’s total damages.

Indeed, the District Court in this case expressly ordered that its

injunction was inapplicable to 3M’s sales of strips.

American Safety Table and Leesona reject that obviously

unjust result. We submit that the Supreme Court should

decide which line of authority should govern.

B. 3 —

It is 5 dispute that patent law, which is expressly

provided for in the Constitution (Art. I, See. 8) and occu-

pies an entire title of the United States Code (Title 35), is

an important area of federal law. The rules governing the

award of damages for patent infringement, of course, are

correspondingly important. We submit that it follows that

the question of whether a patentee will get only a quarter

of its actual damages, or will instead be made whole in

accordance with the usual legal standard, is an important

question of federal law.

It is important not only because of the subject matter,

but equally because of the principle involved. It is clear

that the decision of the Ninth Circuit tells 3M, the delib-

erate infringer, “You may keep your supplies profits, the

motivation for your infringement in the first place. As a

result, 3M, you are better off having infringed than you

would have been had you chosen to respect Velo-Bind’s

patents.” And the decision in substance tells the victim,

Velo-Bind, “Because of the artificial barrier which we have

constructed to prevent damages for profits from lost sup-

plies sales, you can never be made whole for the injury

that 3M has done you, no matter how certainly you prove

the existence of your losses.”

Accordingly, to the degree that the issue is an open ques-

tion, it is clearly an important issue of federal law which

has not been, but should be, settled by the Supreme Court.

TREBLING AND ATTORNEYS’ FEES

Section 284 of the Patent Law (35 U.S.C. § 284) autho-

rizes the imposition of treble damages (or lesser increased

damages) but contains no standards on which the court

should base an exercise of its discretion. Section 285 (35

U.S.C. § 285) permits an award of attorneys’ fees to the

prevailing party, but it, too, lacks any expressed standards

other than that the case be “exceptional.”

Courts have attempted to justify awards of increased

damages and attorneys’ fees, or non-awards, upon the basis

of facts found in the par‘icular cases. Some of those cases

from other circuits seem to be in conflict with this case.

When courts talk in terms of facts, however, rather than

defined legal principles, it is always easy to distinguish a

particular precedent because this fact was mentioned or

that fact was absent.

It is probably more realistic to conclude that no gen-

erally agreed, comprehensive set of standards has ever

been announced. Certainly, none has been announced by

the Supreme Court, which has never even considered either

question, increased damages or attorneys’ fees, in a patent

context. There is an obvious need for the Supreme Court

to confront the question of what it takes to justify increased

damages and attorneys’ fees—and what it takes to justify

their denial. Lower courts need such guidance, and they

should be required to make findings of fact so that it can

be ascertained whether they have in fact followed the ap-

plicable standards. Judicial discretion, without clear stan-

dards as to how that discretion is to be exercised, may be

expected to degenerate into judicial whim.

A. The Standards to Be X „ IA

increasing Damages or ward-

ing Attorneys’ Fees or to Do So involve im-

ee this Court Should

Most of the factors that have been considered as con-

trolling or important in increasing damages or awarding

attorneys’ fees, as well as several others not mentioned in

the cases but which ring an equitable bell, exist in this case:

1. In 1971, 3M conducted a review of Velo-Bind’s patent

claims and did not suggest that there was anything wrong

with them, but instead sought a license from Velo-Bind.

Later, when it was sued, 3M changed its position, and

charged that the claims were invalid.

2. In 1974, when it was deciding whether to sell the in-

fringing machine, 3M did not obtain an opinion of outside,

independent counsel. (This was considered to be a very

important factor in General Electric Company v. Sciaky

Bros., Inc., 415 F.2d 1068, 1073 (6th Cir. 1969).) One of

3M’s inside counsel, Smith, testified many years later that

he gave an oral opinion of non-infringement, but his writ-

ten opinions said no such thing.

3. Rally/Ro-Bind obviously recognized the serious risk

of infringement by expressly refusing to represent that its

machine would not infringe Velo-Bind’s patent.

4. 3M and Rally/Ro-Bind in “hotly contested” negotia-

tions over a merger agreement each sought to saddle the

other with as much responsibility for the legal consequences

of infringement as possible. Tr. 2583:16-2584:16; PI. Ex.

1699, § 1.05 (h), p.6, and Exhibit D thereto. (This fact, par-

ticularly in context with others in this list, suggests a will-

ful infringement, justifying increased damages and attor-

neys’ fees. See, e.g., Coleman Company v. Holly Manufac-

turing Company, 269 F.2d 660, 666 (9th Cir. 1959). Even

by 3M’s characterization, it deliberately chose to manufac-

ture and sell the competing machine, knowing that to do so

at least might constitute infringement.)

5. Velo-Bind was a particularly vulnerable patentee,

since its entire product line depended upon the protection

of the patents which were infringed. (See St. Regis Paper

Co. v. Winchester Carton Corp., 410 F.Supp. 1304, 1309

(D. Mass. 1976), for a statement that the relative sizes of

the parties is important.)

6. Although 3M lost a summary judgment motion, two

motions for a directed verdict and then the jury verdict,

its policy of infringement remained unchanged. 3M went

right on infringing and did not even seek an outside legal

opinion until the eve of judgment. Of course, when it

finally obtained an independent, outside opinion, it stopped.

(3M’s actions during that period of several months dem-

onstrate that it always had a reckless disregard of Velo-

Bind’s rights—amounting to willfulness.)

7. 3M, which had the wealth to finance below-cost, pred-

atory prices, did just that with its infringing machine, ex-

pecting to make big profits on sales of strips used with its

machine.“

8. The District Court directed a verdict on fraud and

unclean hands and correctly regarded 3M’s anticipation

defense as stretching credulity. (The assertion of spurious

defenses has been held to be an important factor.“ See,

e. g., Overman Cushion Tire Co. v. Goodyear Tire d Rubber

Co., 66 F.2d 361, 362 (2d Cir. 1933), cert. denied, 290 U.S.

681 (1933).)

Perhaps the most significant single factor is the final

one. It is a factor that by its nature was not and could not

have been considered by the District Court, since it be-

came a factor only when the Court of Appeals rendered

“This is not the first time that 3M has demonstrated a wanton

disregard for the legal rights of much smaller competitors. See,

United States v. Minnesota Mining & Mfg. Co., 1969 Trd. Cas.

{ 72,865 (N.D. III. 1969); United States v. Minnesota Mining &

Mfg. Co., 249 F.Supp. 594 (E. D. III. 1966).

None of these so-called defenses involved even an arguably

“close question.” Since the evidence was overwhelming that there

was a literal, bullseye infringement, we submit that even that ques-

tion should not be regarded as close. In any event, there is no jus-

tification for resolving allegedly close questions in favor of taking a

chance on infringement.

its decision, chopping away three-quarters of the jury’s

verdict and the District Court’s judgment. It is this:

9. Velo-Bind clearly was not compensated for approxi-

mately three-quarters of its actual damages because the

Court of Appeals concluded that the courts are powerless

to award damages for lost profits on unpatented supplies,

even though such damages are foreseeable and proved. If

the decision of the Court of Appeals on supplies damages

stands, Velo-Bind can be made nearly whole only by per-

mitting the District Court to increase the judgment pur-

suant to Sections 284 and 285. (It has been held that the

inadequacy of compensatory damages to compensate a

patentee fully is an important factor to be considered in

exercising discretion to grant or deny increased damages

and attorneys’ fees. ‘rmstrong v. Emerson Radio d Phono-

graph Corp., 132 F.Supp. 176, 179 (S.D.N.Y. 1955).)

It is clear from the authorities cited above that the Dis-

trict Court could have awarded increased damages and

attorneys’ fees. Velo-Bind submits that under the same

authorities it was an abuse of discretion not to. If that is

so, the Ninth Circuit is at odds with other circuits. What is

more important, however, is that even if this decision can

be reconciled with the language of the cases we have cited,

there exists a situation where, within a very broad spec-

trum of possible facts, each court may exercise its own

whim. If the Supreme Court were to announce the standards

under which lower courts should exercise their discretion,

that spectrum would be narrowed. As a result, application

of Sections 284 and 285 would become more uniform and

predictable in an area of considerable importance in fed-

eral law.

B. Certiorari Is to Determine the Unresolved and

issue of Whether Fed.R.Civ.P. 52(a) 1 —

of Fact on Issues Which Are Raised by

But 7 as Questions of Fact.

As is apparent from the immediately preceding section,

a major disputed issue, on which extensive testimony and

evidence were presented both at the trial and at a post-

trial evidentiary hearing, was the degree of 3M’s culpa-

bility. Velo-Bind’s right to recover increased damages and

attorneys’ fees turned on the District Court’s resolution of

that important issue. However, in denying Velo-Bind’s

motions for attorneys’ fees and increased damages, the trial

court made no findings of fact. Indeed, even its holding of

law was couched in the most conclusory terms: “The Court

. . . finds no sufficient equitable reason to justify the in-

crease in damages ior the award of attorneys fees.” Al-

though the issue of whether the District Court erred by

failing to make findings of fact was presented on appeal,

including Velo-Bind’s petition for rehearing, the Court of

Appeals ignored it.

Whether the standards for the exercise of discretion

under Sections 284 and 285 are to be loose, vague and con-

flicting as they now are, or clear and coherent, as we have

urged this Court to make them, there must be findings of

fact if appellate courts are to conduct meaningful reviews

of trial court decisions. Unfortunately, however, the law is

unsettled as to whether findings of fact are required where

triable issues of fact are raised by motion. The question is

one which has troubled courts and commentators since Fed-

eral Rule of Civil Procedure 52(a) was amended in 1946.

See 5A Moore’s Federal Practice { 52.08 at 2734-35.

Prior to 1946, decisional law had firmly established that

Rule 52(a) “requires findings ‘in all actions tried upon the

facts,” Thomas v. Peyser, 118 F.2d 369, 374 (D.C. Cir.

1941) (emphasis added to Rule 52(a) language by Thomas

court), even where the factual issue had been raised by

motion. For example, in King v. Wall q Beaver Street Cor-

poration, 145 F.2d 377 (D.C. Cir. 1944), the trial court made

findings of fact with respect to defendants’ domicile in dis-

posing of Rule 12(b)(3) and Rule 56 motions. The Court

of Appeals affirmed this procedure, holding that such find-

ings were “required.” Jd. at 380-81. See also, Bowers v.

E.J. Rose Mfg. Co., 149 F.2d 612, 614 (9th Cir. 1945), cert.

denied sub nom. Fisher v. Bowers, 326 U.S. 753 (1945)

(Rule 12(e) dismissal reversed because there was no find-

ing by court of the ultimate fact upon which default judg-

ment based); Perry v. Baumann, 122 F.2d 409, 410 (9th

Cir. 1941) (dismissal without findings of fact held im-

proper).

After reviewing the case law antedating the 1946 amend-

ment, Professor Moore concludes that Rule 52(a) should

not be read as eliminating the requirement that findings of

fact be made explicit where such findings are a necessary

predicate to disposition of motions:

“Although the literal language of the 1946 amendment

stating that findings are unnecessary on decisions of

motions under Rule 12 may obviate the [King decision,

supra] ..., we do not believe that it should for two

reasons. The 1946 amendment should be read in con-

junction and harmonized with the earlier provision of

the Rule requiring findings in all actions ‘tried upon

the facts’; and the reasons for findings of fact are

equally pertinent to this proceeding.”

5A Moore’s Federal Practice J 52.08 at 2738-39 (footnotes

omitted); see also, 9 Wright & Miller, Federal Practice

and Procedure: Civil § 2575 at 694.

A number of courts have agreed with Professor Moore’s

position that Rule 52(a) must be read in light of judiciai

precedent as requiring that necessary findings of fact be

made explicit. In the very recent case of Williamson v.

Tucker, 645 F.2d 404 (5th Cir. 1981), for example, the trial

court had decided complex Rule 12 and Rule 56 motions

without findings of fact. The Fifth Circuit noted that it

“need not decide whether the district courts are required

to make findings of fact whenever a decision of a motion

is based on a factual determination,” since the record in

that case could not “be construed in any way so as to sup-

port the action taken by the district court... .“ 645 F.2d

at 411. However, it did suggest that Rule 52(a) is properly

interpreted as requiring such findings:

“The findings required by Fed.R.Civ.P. 52(a) serve

three important purposes: they aid the appellate court

by helping it to understand the basis of the trial court's

decision; they clarify the precise issues which are de-

cided by the court ..; and they insure care on the

part of the trial judge in ascertaining the facts. All

three of these purposes are served whenever the dis-

trict court makes a decision on the basis of factual

determinations, even when that decision is on a mo-

tion under Rule 12.”

645 F.2d at 411, n. 3 (citations omitted). See also, Hobbs d

Company, Inc. v. American Investors Management, Inc.,

576 F.2d 29, 36, n. 22 (3d Cir. 1978); Horizons Titanium

Corp. v. Norton Co., 290 F.2d 421, 424, n. 3 (Ist Cir. 1961).

The problem of whether Rule 52(a) requires findings of

fact on issues of fact raised by motion, and the inability

of the appellate courts to provide adequate review without

such findings, are concerns which have generated scholarly

opinions,“ concurrences,” and dissents for decades. The

"See cases cited supra, and see American Cyanimid Company v.

Sharff, 309 F.2d 790, 798 (3d Cir. 1962).

"See the concurring opinion of Burger, J., in Von Der Heydt v.

Rogers, 251 F.2d 17, 19-20 (D.C. Cir. 1958) (findings of fact were

required on a dismissal for failure to comply with discovery orders

by reason of Rule 41(b)).

*See Lea v. Cone Mills Corp., 467 F.2d 277, 279 (4th Cir. 1972)

(Winter, J., dissenting) (expressing “serious doubts that Rule

52(a), F.R.Civ.P., does not require findings of fact and conclusions

issue is squarely presented by the facts of this case, and

petitioner respectfully submits that certiorari should be

granted to review the failure of the trial court to render

findings of fact on petitioner’s motions for increased dam-

ages and attorneys’ fees.

CONCLUSION

The decision of the Ninth Circuit denying supplies

damages is conceptually unsound and in conflict with the

decision of at least one other circuit and the Court of

Claims.

As it pertains to awards of increased damages and at-

torneys’ fees, the decision appears to be in conflict with the

decisions of other circuits and would unquestionably be so

were it not for the failure of most cases to announce a

clear, meaningful rule for when such awards are to be

granted and when they are to be denied, a void which the

Supreme Court should fill. Moreover, the failure of the

Court of Appeals to require findings of fact raises a fun-

damental question transcending patent law, a question upon

which the Supreme Court has not spoken.

of law by the district court in this case, notwithstanding that the

judgment for payment of counsel fees was requested by motion”);

Interpace Corp. v. City of Philadelphia, 438 F. 2d 401, 404-405 {3d

Cir. 1971) (Adams, J., dissenting) (expressing agreement with

Moores view on Rule 52(a) ).

Velo-Bind therefore submits that a writ of certiorari

should be granted as to both of the issues presented by

this petition. The decision with respect to supplies dam-

ages is so clearly in error that Velo-Bind respectfully sug-

gests that this Court should consider summary reversal.

Respectfully submitted,

James K. Haynes

Of Orrick, Herrincton & Sutcuirre

A Professional Corporation

By James K. Haynes

Counsel for Petitioner,

Velo-Bind, Incorporated

JULIAN CAPLAN

Gree, Capitan & Hicorns

Of Counsel for Petitioner,

Velo-Bind, Incorporated

October 7, 1981

(Appendices follow)

Appendix A

Velo-Bind, Incorporated, a California Corporation,

Plaintiff-Appellant,

Minnesota Mining & Manufacturing Company,

a corporation; 3M Business Products Sales, Inc.,

a corporation; Ro-Bind Corporation, a corporation;

Rally Industries, a corporation; and Joe D. Giulie,

Defendants-Appellees.

Velo-Bind, Incorporated, a California Corporation,

Plaintiff-Appellee,

Minnesota Mining & Manufacturing Company,

a corporation; 3M Business Products Sales, Inc.,

a corporation; Ro-Bind Corporation, a corporation,

and Rally Industries, a corporation,

Defendants-Appellants.

Velo-Bind, Incorporated, a California Corporation,

Plaintiff-Appellee,

Minnesota Mining & Manufacturing Company,

a corporation; and 3M Business Products Sales, Inc.,

a corporation, Defendants-Appellants.

Nos. 79-3338, 79-4448 and 79-4584.

United States Court of Appeals, Ninth Cireuit

Argued and Submitted July 8, 1980.

Decided June 8, 1981.

A-2

Appeal from the United States District Court for the

Northern District of California.

Before DUNIWAY, SNEED and POOLE,

Circuit Judges.

DUNIWAY, Circuit Judge:

In No. 79-4448 appellants (hereinafter 3M) appeal from

the district court’s judgment, entered following a jury

trial, finding that the 3M Model 1000 binding machine

infringes three valid patents owned by Velo-Bind, award-

ing damages to Velo-Bind of $3,934,333 plus interest, and

permanently enjoining 3M from infringing the patents.

We affirm in part and reverse in part.

In No. 79-4584 3M further appeals from the district

court’s refusal to modify the injunction so as to specifically

exempt 3M’s proposed 1000DA binding machine from its

terms. We affirm.

In No. 79-3338 Velo-Bind cross-appeals from the districi

court’s refusal to award treble damages and attorney's

fees. We affirm.

I. Facts.

In 1966, William Abildgaard and Charles Groswith

formed what is now Velo-Bind for the purpose of invent-

ing a new system of binding books and documents. After

several false starts, they succeeded in 1968 in inventing a

strip binding machine. Simply stated, this machine forms

a bind by placing on either side of the pages to be bound,

and then compressing, a male plastic strip with nail-like

studs and a female plastic strip with holes corresponding

to the studs.

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The machine which Velo-Bind eventually developed for

sale joins the two strips to form a lasting bind through

the use of a “hot knife” process. In this process, once the

strips are pressed together with the studs from the male

strip projecting through the holes in the female strip, a

hot knife or shear cuts off the excess length of the studs

leaving heat softened stud ends. These malleable ends are

then deformed into rivets by the striking action of heading

arms. The rivet heads quickly cool creating a permanent

bind.

Desiring to manufacture and market its invention but

short of capital, Velo-Bind entered into negotiations with

3M in 1971. When these negotiations ended without an

agreement, Velo-Bind proceeded on its own, eventually

manufacturing several models of its by then patented strip

binder, all of which employed the hot knife system.

3M also proceeded on its own. In 1975, 3M began selling

its Model 1000 binding machine. Although a strip binding

machine similar in structure to Velo-Bind’s, 3M’s machine

forms its bind by means of atchet teeth on the studs of the

male strip, engaged and held in place by friction-locking

blocks in the female strip. Thus there is no need to heat

the stud ends in order to form rivets, and the excess length

of the studs is removed by a cold knife.

Velo-Bind brought suit claiming infringement of three

of its patents—claims 1, 2, and 3 of patent No. 3,608,117

for Machine for Binding and Punching Sheets (herein-

after the 117 patent); claims 1 and 7 of patent No.

3,756,625 for Method and Apparatus for Binding Books

(hereinafter the 625 patent); and the design patented in

patent No. DES 227,195 for Machine for Binding Books

(hereinafter design 195). Because claims 2 and 3 of the

117 patent and claim 7 of the 625 patent are dependent

upon claim 1 of their respective patents, and because the

design patent concerns only the outward appearance of the

machine and only $250 in damages, the two claim 1’s be-

came the focus of the litigation.

At trial Velo-Bind presented extensive testimony by an

expert witness, Harris Zimmerman. 3M did not counter

with an expert of its own, nor did it challenge Zimmerman’s

qualifications. The jury found that each patent claim in

issue was both valid and infringed, and awarded damages

to Velo-Bind that included not only lost profit on the sale

of the machines but also lost profit on the sale of un-

patented paper, plastic strips, and book covers. The district

court refused to overturn this verdict and further enjoined

3M from future infringements, without exception for 3M’s

proposed 1000DA model.

In these appeals 3M argues as a matter of law that there

was no infringement, that Velo-Bind’s patents are invalid,

that the jury’s damage measure was improper, and that

3M was entitled to a ruling that its proposed Model

1000DA did not infringe Velo-Bind’s 117 and 625 patents.

Velo-Bind cross-appeals from denial of treble damages and

attorney’s fees.

II. Infringement.

3M argues that its Model 1000 does not infringe Velo-

Bind’s patent claims as a matter of law, and thus that

it was entitled to a judgment in its favor. The gist of 3M’s

argument is that when properly construed, Velo-Bind’s

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mechanical patent claims refer only to a machine employ-

ing the hot-knife process. We disagree.

Claim 1 of the 117 patent describes a strip binding

machine as follows:

Apparatus for binding sheets together with the use

of a first strip, a plurality of studs projecting from

and spaced longitudinally relative to said first strip

and a second strip formed with apertures spaced longi-

tudinally of said second strip at intervals comple-

mentary to said studs, said apparatus comprising a

frame having means shaped to receive one said strip,

a platen table adjacent said means to support aper-

tured sheets, a pressure foot formed to engage the

other of said strips, cooperating means on said frame

and said pressure foot to move said pressure foot

toward said first-mentioned means to bring said strips

together with said studs projecting through said aper-

tures, and shear means to cut off the ends of said

studs projecting through said second strip.

Claim 1 of the 625 patent is much the same although it

refers to a “cutting means” instead of a “shear means”

to cut off the stud ends.

Recognizing that the literal language of either claim 1

covers its Model 1000, 3M seeks to limit the claims by

reading into them both a hot knife and the hot knife

binding process. 3M correctly argues that the use of

“means” terminology brings into play 35 U.S.C. §112.

Under this section where a claim uses “means” language,

“such claim shall be construed to cover the corresponding

structure, material, or acts described in the specification

and equivalents thereof.” 3M argues that since the specifi-

cations must be referred to, and since they describe a hot

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knife or shear, each claim 1 must therefore be read to

include a hot knife and the hot knife binding process thus

excluding 3M’s cold knife machine from its terms.

In making this argument 3M looks only to one part of

the specifications—the general description of the hot knife

process preceding the claims. The claims themselves, how-

ever, are also part of the specifications. 35 U.S.C. § 112.

And looking to the other claims, including those not at

issue, it appears that by “shear means” or “cutting means”

neither claim 1 refers only to a heated knife. For example,

claim 4 of the 117 patent refers to “a plurality of blades

. . and heating means to heat said blades.” (emphasis

added). Claim 9 of the same patent describes an

“[a]pparatus ... which further comprises heating means

to heat said shear means. (emphasis added). In view

of the other claims in the two patents, it appears both that

the failure of either claim 1 to specify a hot knife was

deliberate and that in any event a “shear means” or

“cutting means” and a “heating means” are different

structures.

More importantly, 3M’s argument of noninfringement

assumes that if, by “shear means” or “cutting means” and

the application of section 112, claim 1 of either patent must

have reference to a hot knife, then it must also be under-

stood to refer only to the hot knife binding process. Such

an assumption is unwarranted. Neither claim 1 makes any

reference to the hot knife binding process, and the descrip-

tion of this process in the specifications does not limit the

claims. Smith v. Snow, 1935, 294 U.S. 1, 11, 55 S.Ct. 279,

283, 79 L.Ed. 721, (“the claims of the patent, not its

specifications, measure the invention.“).

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Moreover, this assumption finds no support in section

112, which requires only that shear or cutting “means” be

construed in light of the “corresponding structure, ma-

terial or acts” in the specifications; it does not require

that the claim be further limited to the description in the

specifications. Nor can it be argued that the hot knife

binding process—as opposed to a hot knife—is the “cor-

responding structure material or acts” of the shear or

cutting means referred to in the claims. The shear or

cutting means, whether hot or cold, function simply to

cut off the stud ends. The process of creating a permanent

bind, whether by friction fit strips, ratchet teeth on the

male studs, or formation of rivet heads, is a separate

matter. 3M showed as much in its cross-examination of

Zimmerman:

Q. ... Now, what is the function which the shear

means provides in the patented machine?

A. The function is to enable the machine to ac-

commodate the different thicknesses of bound volumes.

Q. And the function is to cut off the ends of the

studs, is it not?

A. That’s correct.

Without the assumption that the hot knife and the hot

knife binding process are the same, 3M’s contention that

“shear means” or “cutting means” refers to a hot knife

is of little significance. Even if either claim 1 were under-

stood to describe a hot knife to cut off the studs, certainly

a cold knife used to perform the same function would be

covered by the claim, if not literally, then under the doe-

trine of equivalents. See Graver Tank d Mfg. Co., Inc. v.

Linde Air Products Co., 1950, 339 U.S. 605, 608-609, 70

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S.Ct. 854, 856-857, 94 L.Ed. 1097. Zimmerman gave uncon-

tradicted testimony that “anyone skilled in just about any

.. . mechanical art would know that if you cut something

. . . you do it faster, probably less noisy and less pressure

required to cut with a hot blade or a hot knife. Only anyone

that has the skill of any kind in the art knows that you

ean also cut with cold knives.”

In short, because neither claim 1 is limited to the hot

knife binding process, whether the knife is hot or cold

is immaterial. There is infringement either way.

3M makes several other arguments against a finding of

infringement, none of which is convincing, First 3M argues

that Velo-Bind’s advertising and other corporate state-

ments indicate that it understood the patent and the actual

invention to be limited to a hot knife binding process.

Even if probative of the scope of claim 1, however, these

statements were contradicted by other evidence in the

record as to Velo-Bind’s intention. The jury’s implicit

finding of fact that these corporate statements did not

define the scope of Velo-Bind’s invention or understanding

was reasonable and was supported by substantial evidence.

Moreover, an inventor’s decision to manufacture and

market one embodiment of his invention obviously does

not limit the patent to that embodiment. Continental Paper

Bag Co. v. Eastern Paper Bag Co., 1908, 210 U.S. 405, 418,

28 S.Ct. 748, 751, 52 L.Ed. 1122.

Second, 3M argues that because Velo-Bind did not assert

the doctrine of equivalents at trial it may not do so here.

But the trial court instructed the jury on this doctrine, and

in any event, “[aJn appellee may defend a judgment on

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any ground consistent with the record.” C. Wright, Law

of Federal Courts, § 104, p. 523 (3d ed.).

Finally, 3M argues that Velo-Bind conceded that the

cold knife was not equivalent to a hot knife. 3M bases this

argument on Velo-Bind’s failure to charge infringement of

those claims specifying a hot knife and on Groswith’s testi-

mony in which he “guessed” that Velo-Bind had not

charged 3M with infringing claim 4 of the 117 patent be-

cause 3M’s machine “doesn’t have heating means to heat

the blades.” But neither of these facts amounts to a formal

concession of no infringement. And even were we to agree

that Velo-Bind had conceded no infringement of claims

such as claim 4 of the 117 patent, it does not follow that

there was no infringement of claim 1. “[A] patentee’s

broadest claim can be no broader than his actual inven-

tion,” Kemart Corp. v. Printing Arts Research Labora-

tories, 9 Cir., 1953, 201 F.2d 624, 633, but Velo-Bind’s

“actual invention” included not only a machine using the

hot knife process—e.g., claim 4—but also a machine pre-

paring sheets for strip binding no matter how the bind was

to be secured, e.g., claim 1. Thus the rule, also stated in

Kemart Corp., supra, “that in interpreting a series of

claims, a limitation not present in one may not be implied

where the same limitation appears in later claims,” is

applicable here.

Thus we affirm the finding of infringement of Velo-

Bind's mechanical patents 117 and 625. However, we

cannot accept the jury’s finding of infringement of Velo-

Bind’s design 195. Having examined the design 195 and

the infringing machine, we conclude that the designs are

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not so substantially the same “in the eye of an ordinary

observer . . such as to deceive such an observer.” Sun

Beam Lighting Co. v. Pacific Associated Lighting, Inc., 9

Cir., 1964, 328 F.2d 300, 301. The jury’s finding to the con-

trary was not supported by substantial evidence.

III. Validity.

3M argues that Velo-Bind cannot have it both ways: If

Velo-Bind’s patents are interpreted to cover more than the

hot knife process so as to support a finding of infringe-

ment, then these same patents must be held invalid as a

matter of law. In particular, 3M argues that if claim 1 of

the 117 or 625 patent covers more than the hot knife bind-

ing process disclosed in the specifications, it is invalid

because it fails to meet the disclosure requirements of 35

U.S.C. § 112, or because it is anticipated by prior art under

35 U.S.C. § 102, or because it would be obvious to someone

skilled in the art under 35 U.S.C. § 103.

A. Validity under 35 U.S.C. § 112.

35 U.S.C. 5 112 requires in relevant part that It jhe

specification shall contain a written description of the

invention . .. in such full. . . terms as to enable any person

skilled in the art . .. to make and use the same. . . . The

specification shall conclude with one or more claims par-

ticularly pointing out and distinctly claiming the subject

matter which the applicant regards as his invention.” 3M

argues that because, when read literally and without in-

corporating the hot knife process, neither claim 1 describes

an invention which works—that is, binds books, neither

satisfies the disclosure requirements of this section.

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3M’s argument is without merit. There was evidence at

trial that at least one method of securing a bind would be

obvious to anyone skilled in the art although not specified

by either claim 1. Velo-Bind produced evidence that a ma-

chine built according to claim 1 of the 117 patent could

bind by use of friction fit strips—the male studs being

slightly larger than the corresponding holes in the female

strip. Such a machine was demonstrated at trial. In addi-

tion, Groswith gave uncontradicted testimony that “any

engineer would know that parts can be joined together

with friction or what is called interference fit.” We take

judicial notice that this is correct. The carpenter’s nail is

very old art indeed.

Moreover, either claim 1 may also be upheld as a sub-

combination patent that describes a machine which pre-

pares pages for permanent book binding. “It has long

been recognized that claims for combinations and also sub-

combinations may be validly allowed by the patent office

. „ and that a claim need not include all the elements

necessary to make up a complete operative device”

(citations omitted). Pursche v. Atlas Scraper and En-

gineering Co., 9 Cir., 1961, 300 F.2d 467, 476 (citing Deer-

ing v. Winona Harvester Works, 1894, 155 U.S. 286, 302,

15 S.Ct. 118, 124, 39 L.Ed. 153, (“Admitting that additional

elements are necessary to render the device operative, it

does not necessarily follow that the omission of these

elements invalidates the claim, or that the precise elements

described in the patent as rendering it operative must be

read into the claim. (emphasis added)).

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B. Anticipation and Obviousness.

3M argues that all of the elements of claim 1 of the ‘117

and ‘625 patents were anticipated by other patents, parti-

cularly by a patent for a purse making machine known as

the Wurzner patent.

We have held that anticipation is a strictly technical

defense. Jones v. Vefo Inc., 9 Cir., 1979, 609 F. 2d 409, 410.

“Unless all of the same elements are found in exactly the

same situation and united in the same way to perform the

identical function in a single prior art reference there is

no anticipation.” Jd., quoting Walker v. General Motors

Corp., 9 Cir., 1966, 362 F.2d 56, 68. Velo-Bind’s expert,

Zimmerman, gave extensive testimony on direct and on

cross-examination differentiating Velo-Bind’s patent claims

from those of the Wurzner patent and of the many other

patents that 3M advanced as anticipating Velo-Bind’s

claims. He testified, for example, that the Wurzner ma-

chine did not provide for a “pressure foot” or “pressure

bar” nor for a “means shaped to receive a strip.” Indeed,

the district judge specifically noted in his memorandum of

decision that all of 3M’s contentions involving the Wurzner

machine “[strain] credulity.”

Similarly, we reject 3M’s contention that Velo-Bind’s

mechanical patents—the 117 and 625 patents—were

obvious and therefore invalid unless interpreted to include

the hot knife binding process. Under 35 U.S.C. 5 103 a

patent may not be obtained “if the differences between

the subject matter sought to be patented and the prior art

are such that the subject matter as a whole would have

been obvious . . to a person having ordinary skill in the

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In Graham v. John Deere Co., 1966, 383 U.S. 1, 86 S. Ct.

684, 15 L.Ed.2d 545, the Court found that application of

§ 103 requires several “factual inquiries” into “the scope

and content of the prior art . .; differences between the

prior art and the claims at issue . . .; and the level of

ordinary skill in the pertinent art.. . Jd. at 17, 86 S.Ct.

at 694. The trial court so instructed the jury, and the jury’s

findings of validity in answer to the court's interrogatories

implicitly answered each of these factual questions. See

Control Components, Inc. v. Valiek, Inc., 5 Cir., 1980, 609

F. 2d 763, 767; see also Palmer v. Orthokinetics, Inc., 9 Cir.,

1980, 611 F.2d 316, 319 (precise articulation of Graham

analysis not necessary where trial court’s opinion in con-

text or record reveals Graham inquiries were made).

Although the conclusion of validity is ultimately one of

law, the jury’s findings of fact which underlie this legal

conclusion may not be overturned on appeal if supported

by substantial evidence. See Saf-Gard Products, Inc. v.

Service Parts, Inc., 9 Cir., 1976, 532 F.2d 1266, 1272, cert.

denied, 1976, 429 U.S. 896, 97 S.Ct. 258, 50 L.Ed.2d 179

(the trier of facts’ “Graham findings are binding on appeal

if not clearly erroneous”). And after reviewing the record

before us we find ample support for the jury’s conclusion

that Velo-Bind’s mechanical patents were not obvious.

Velo-Bind’s expert witness contrasted Velo-Bind’s claims

with prior art in some detail, and gave his opinion that

Velo-Bind’s claims were not obvious to a person of ordi-

nary skill in the art. His opinion was buttressed by other

evidence in the record, particularly that relating to the

brief history of strip binding. This history was one of the

“long felt but unsolved needs,” failed efforts by both

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Abilgaard and 3M, and finally a commercially successful

breakthrough. See Graham v. John Deere Co., supra, 383

U.S. at 17-18, 86 S.Ct. at 693-694.

Indeed, so convincing is this evidence that even if we

must test Velo-Bind’s patents under the more rigid scrutiny

given to combination patents, see Penn International In-

dustrics v. Pennington Corp., 9 Cir., 1978, 583 F.2d 1078,

1081-82, we reach the same conclusion of non-obviousness.

The evidence in the record indicates that Velo-Bind’s pa-

tents produced an unusual or surprising—synergistic—

result. See Speed Shore Corp. v. Denda, 9 Cir., 1979, 605

F.2d 469, 471; Kamei-Autokomfort v. Eurasian Automo-

tive Products, 9 Cir., 1977, 553 F.2d 603, 608.

We therefore conclude that the jury’s implicit factual

determinations under Graham were supported by sub-

stantial evidence; the district court’s refusal to overturn

the jury’s finding of validity was not in error. However,

because we have found that Velo-Bind’s design patent was

not infringed, it was error for the district court to enter

any judgment as to the validity of this patent. Mobil Oil

Corporation v. Filtrol Corporation, 9 Cir., 1974, 501 F.2d

282, 293-4.

IV. Damages

35 U.S.C. § 284 provides in relevant part that “the court

shall award the claimant damages adequate to compen-

sate for the infringement, but in no event less than a

reasonable royalty for the use made of the invention by

the infringer.” Velo-Bind requested and the jury awarded

$3,934,333 in damages. Although the jury did not specify

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the components of this award, as we read the record, Velo-

Bind gave evidence on damages as follows: $645,578 for

lost profits on the patented machines including lost sales of

machines as well as lost profits on machines that were sold

at low prices because of competition with 3M’s machines;

$268,000 in added costs caused by rushing Model 123 into

competition with 3M’s machine; and $3,020,725 to compen-

sate for projected lost profits over the eight-year life of a

machine on sales of unpatented paper, plastic strips, and

book and document covers used in making books. The latter

figure includes $415,150 arising from forbearance from

price increases on strips which actually sold because of

3M’s competition.

3M first argues that those damages based on lost sales

of unpatented supplies should not have been awarded as

a matter of law. We agree. As Velo-Bind’s damage request

indicates, Velo-Bind derives the vast bulk of its profits not

from the sale of its machine but from the sale of un-

patented supplies used in strip binding—paper, plastic

strips and book covers. Velo-Bind argues that although it

does not unlawfully tie the sale of these unpatented sup-

plies to the sale of its machine, as a matter of commercial

reality such supply sales do in fact follow upon the sale

of a machine. Velo-Bind urges that if it has provided the

jury with adequate evidence that these supply sales would

have been made, it must be awarded damages for lost sup-

ply sales profits under the statute if it is to be fully “com-

pensate[d] for the infringement.” (4 284).

We hold, however, that damages for lost profits on sales

of unpatented, consumable supplies are not contemplated

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by the patent law. As in so much of patent law, we observe

here the tension between the law’s desire to protect the

patentee and its desire to preserve competition.

To begin with, we find Velo-Bind’s position anomalous.

It concedes that it may not tie the sale of unpatented sup-

plies to the sale of machines. To do so would violate the

antitrust laws, e. g., International Salt Co. v. United States,

1947, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20; Rex Chainbelt,

Inc. v. Harco Products, Inc., 9 Cir., 1975, 512 F.2d 993,

1000-1003. It would also be a misuse of the patent, pre-

cluding its enforcement, e. g., Leitch Mfg. Co. v. Barber

Co., 1938, 302 U.S. 458, 58 S.Ct. 288, 82 L.Ed. 371; Rex

Chainbelt, Inc., supra. Yet Velo-Bind’s claim for damages

comes close to asking the court to give de facto recognition

to a tieing relationship which would be illegal.

Velo-Bind also admits that if 3M had deprived Velo-

Bind of virtually all of its profits by simply selling strips,

paper, and covers to Velo-Bind’s customers, without selling

the infringing machine, Velo-Bind would have had no claim

for relief under the patent laws. Yet Velo-Bind’s request

for damages is very similar.

The singularity of Velo-Bind’s request is further high-

lighted by examination of the case law it relies upon for

support. Velo-Bind argues that cases applying the “entire

market value rule” support its position. American Safety

Table Co. v. Schreiber, 2 Cir., 1969, 415 F.2d 373, 377,

quoting Electric Pipe Line, Inc. v. Fluid Systems, Inc.,

D.C.Conn., 1956, 146 F.Supp. 262, 264, states the rule:

“where the entire marketable value of the thing sold is

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dependent on the patent, its entire value is included in

computing infringement damages.” See also 8 Walker, Pat-

ents (Deller ed. 1973) § 775. But in none of the cases that

Velo-Bind cites has the entire market value rule been

applied so as to permit recovery of damages for projected

lost sales of consumable, unpatented supplies upon which

a patented machine works.

In American Safety Table, supra, the court permitted

recovery of lost profits from an unpatented table on which

a patented die assembly was placed. But see Judge Hays’

dissenting opinion, id. at 383. The court adopted the dis-

trict court’s summary of the set of facts that permitted

recovery of his damage element: “. . . defendants’ infring-

ing sales of machines and assemblies created the market

for the sale of tables separate from assemblies. This situ-

ation is thus analogous to that where tables are sold as

parts of complete machines.” Id. at 377 (emphasis added.)

Paper Converting Machine Co., Inc. v. FMC Corp., E.D.

Wis., 1977, 432 F.Supp. 907, 913, is similarly distinguish-

able. Electric Pipe Line, Inc. v. Fluid Systems, 2 Cir., 1957,

250 F.2d 697, awarded damages for infringement of a

process patent, including lost sales of unpatented com-

ponent parts of the system. But again the court was not

awarding damages for consumable supplies but for the

components of a single assembly.

Finally, Velo-Bind relies upon Leesona Corp. v. United

States, Ct.Cl., 1979, 599 F.2d 958. There, the patent at

issue was for a rechargeable battery, and the court awarded

damages that included lost sales of unpatented anodes,

cathodes, and covers used with the battery. Even so, the

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court made clear that it did not view these items as sup-

plies but rather as part of a single package.

These cases do not support Velo-Bind’s proposition that

damages ought to be awarded for lost sales of unpatented,

consumable supplies. Indeed, the one case most clearly on

point, Autographic Register Co. v. Sturgis Register Co.,

6 Cir., 1940, 110 F.2d 883, 884-885, holds that such damages

should not be awarded. In Autographic Register the court

held that a patentee could not recover damages for lost

sales of paper slips designed to be used in a patented regis-

ter. As in the case here, the patentee derived most of his

profit from the sale of unpatented supplies and very little

from the sale of the machine. The court concluded, how-

ever, that this fact was immaterial and that the patent

simply did not cover “perishable and consumable goods”

used in the machine. See also Union Carbide Corp. v. Gra-

ver Tank & Mfg. Co., 7 Cir., 1960, 282 F. 2d 653, 664.

Our view that damages for unpatented supplies should

not be awarded is supported by several additional con-

siderations. First, although courts have applied the entire

market value rule in certain limited circumstances, this

rule is itself an exception to the more general rule that,

where the patent creates only part of the profits, damages

are limited to that part of the profits, which must be ap-

portioned as between those created by the patent and those

not so created. See Westinghouse Electric & Mfg. Co. v.

Wagner Electric & Mfg. Co., 1912, 225, U.S. 604, 614-15,

32 S.Ct. 691, 694, 56 L.Ed. 1222. The damages sustained

by Velo-Bind are easily apportioned between patented and

unpatented lost sales.

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Second, there are many elements of damage which may

be caused by an infringement and yet which are unrecover-

able as a matter of law. Indirect consequential damages are

not recoverable, Walker, supra, § 755, and lost supply sales

would appear to be a similar sort of damage particularly

because Velo-Bind’s claim is based on projected sales.

Third, damages based on projected supply sales over an

eight year period must be highly speculative. Despite testi-

mony by Velo-Bind’s witnesses as to estimated sales, the

effect of our decision today must render Velo-Bind’s pro-

jections uncertain. Those who continue to use the 3M ma-

chine may be subject to suit for infringement; those who

supply or maintain them may be subject to suit for con-

tributory infringement.

Finally, we do not think that Dawson Chemical Co. v.

Rohm d Haas Co., 1980, 448 U.S. 176, 100 S.Ct. 2601, 65

L.Ed.2d 696, affects the decision in this case. In Dawson

the holder of a process patent on a chemical herbicide sued

other manufacturers of the chemical used in the process for

contributory infringement under 35 U.S.C, 5 271. Empha-

sizing that the chemical was not a staple product under

section 271 (e), the Court held that the patentee might main-

tain the suit even though the chemical itself was unpatent-

ed and the company refused to license others to sell it.

Although Dawson extends some patent protection to

unpatented supplies, it does so only in the particular con-

text of a process patent, an action for contributory in-

fringement under a specific statutory section, and a com-

modity conceded to be a non-staple product under the

section. In light of the Court’s traditional concern that

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protection of a patented invention be strictly limited to the

invention, we do not view the opinion in Dawson as estab-

lishing a rule that damages for unpatented consumable

supplies may be collected in suits for direct infringement

of a mechanical patent.

Accordingly, we reverse the district court’s award of

damages for lost profits on sales of unpatented supplies

and for infringement of design 195. However, we do not

accept 3M’s further contention that the other elements of

damages in the award must be overturned for lack of suffi-

cient evidence. Velo-Bind’s witnesses—primarily officers of

the Company—testified at length as to lost sales and profits

on the patented machines caused by the infringement as

well as to the added costs incurred in rushing Model 123

into competition against 3M’s machine. 3M did little at trial

to discredit their testimony or to offer contradictory testi-

mony of its own.

Moreover, the estimate that Velo-Bind would have made

three of every four 3M sales was not unreasonable, per-

haps was even conservative, in light of the admitted fact

that strip binding machines appeal to much the same

market. Velo-Bind’s witnesses gave considerable testimony

as to how they reached the three or four figure and as to

the factors dey had considered. For example, they had

taken into account 3M’s name, luck, differences in pricing,

competition from other companies, and effectiveness of

sales personnel. As to the remaining elements of damage,

Groswith testified about the nature of the additional costs

incurred from rushing production of the Model 123, while

3M’s own witness gave testimony tending to support Velo-

A-21

Bind’s claim that it could have raised the price of its

machines but for 3M’s competition.

Damages “are not rendered speculative or conjectural

merely because they cannot be calculated with mathematical

exactness.” Marquis v. Chrysler Corp., 9 Cir., 1978, 577

F. 2d 624, 638, quoting Loew’s, Inc. v. Cinema Amusements,

10 Cir., 1954, 210 F.2d 86, 95. The jury was fully capable

of evaluating the evidence put before it. The district court

did not err in refusing to overturn the verdict as to these

elements of damage.

V. Modification of the Injunction—No. 79-4584.

3M moved the district court to modify its injunction

against further infringement by 3M “to provide that the

manufacture, use and sale of a binding machine which 3M

has designed as the Model No. 1000DA . .. does not con-

stitute an infringement of either of the two mechanical

patents in suit.” The district court denied the motion ex-

pressing “reluctance to engage in a summary procedure of

this nature” as well as uncertainty “that the Model 1000DA

does not infringe the mechanical patents in question.”

We believe that the district court was correct in refusing

to accept 3M’s proposed modification. 3M’s request was less

one for clarification or modification than one for a summary

adjudication of an infringement claim. In refusing the

request for modification, the court below relied upon Atiyeh

v. Filtex Corporation, S. D. Cal., 1955, 130 F.Supp. 196, in

which a virtually identical request for modification was

made by a patent infringer. There the court found that the

request was in essence a disguised action for a declaratory

judgment: “Yet, rather than taking the form of an action

A-22

for declaratory relief, defendant has chosen to present the

matter by this summary method. One function of the

declaratory judgment act was to afford relief against the

peril and insecurity of defying an injunction decree in a

patent suit... . [The defendant’s] method would . . . seem

to circumvent the patentee’s right to a trial of the fact

issues by a jury.” /d. at 197 (citations omitted). We agree

with this reasoning and with the district court’s refusal to

engage in “a supplemental summary proceeding in a for-

mer patent infringement case.” Jd. at 198.

Moreover, although its position is not entirely clear, 3M

appears to argue either that its request for modification

was taken under Rule 62(c), F.R.Civ.P., or as an appeal

to the district court’s inherent authority to modify its in-

junctions. Under either theory the request appeals to the

discretion of the district court. See Rule 62(c), F.R.Civ.P.

(“the court in its discretion may . .. modify . . . an injune-

tion during the pendency of the appeal . . .”); Regal Kunit-

wear Co. v. NLRB, 1945, 324 U.S. 9, 15, 65 S.Ct. 478, 482,

89 L.Ed. 661 (“. .. such relief would be in the sound discre-

tion of the court . .”). The district court’s refusal to grant

3M’s request for relief amounting to the summary adjudi-

cation of a separate and prospective act of infringement

was not an abuse of its discretion.

We need not and do not express any opinion as to

whether the proposed machine infringes any of Velo-Bind’s

claims.

VI. Treble Damages and Attorneys’ Fees—No, 79-3338

Velo-Bind cross-appeals from the district court’s refusal

to increase the damages as provided by 35 U.S.C. § 284—

A-23

“the court may increase the damages up to three times the

amount found or assessed” (emphasis added)—or to award

attorneys’ fees as provided by 35 U.S.C. § 284—“the court

in exceptional cases may award reasonable attorney fees to

the prevailing party.” (emphasis added).

Velo-Bind argues, as it must, that the district court’s

refusal to award these additional sums was an abuse of

its discretion. We find no such abuse. The questions of

patent validity and infringement in this case are complex

and close. The district court’s conclusion that 3M’s conduct

was not so egregious or exceptional as to compel additional

damages or attorneys’ fees was a proper exercise of its

discretion. See Troy Company v. Products Research Com-

pany, 9 Cir., 1964, 339 F. 2d 364, 367-68.

In No. 79-3338 and No. 79-4584 the judgment is affirmed.

In No. 79-4448 the judgment is reversed in part and affirmed

in part and the matter is remanded for further proceed-

ings consistent with this opinion, either by granting a new

trial on the issue of damages or by granting a new trial

subject to a remittitur of the amount of damages attribu-

table to lost profits upon sales of unpatented paper, plastic

strips and covers and for infringement of design 195.

POOLE, Cireuit Judge, dissenting, in part, and concur-

ring, in part:

The majority’s resolution of the infringement-validity

problems of this case has a certain neat appeal, particularly

since a jury has already passed on some of the underlying

issues. Respectfully I must nonetheless dissent. I do so be-

cause after applying my own best analysis, I cannot agree

that 3-M’s binding machine does in fact infringe Velo-

A-24

Bind’s patent unless one gives those claims interpretation

so broad that they would be invalid.

A patent presupposes an invention or discovery (35

U.S.C. 5 100(a)), and may only be obtained for a “new

and useful process, machine, or any new and useful

improvement thereof, *.” 35 U.S.C. § 101. Velo-Bind’s

primary claims describe a means of securing and insert-

ing plastic pins contained in one strip into complementary

holes in an opposing strip. This type of fastening is not by

itself new and would not entitle Velo-Bind to a patent. The

majority opinion describes the alternate methods of secur-

ing such pins in the manner of a ratchet (which is what

the 3-M machine does); by the familar carpenter’s practice

of driving a tapered nail (which would not be patentable) ;

or by fashioning a rivet head to secure the pins once they

have been inserted. The latter is what the Velo-Bind pat-

ents do and they do it by the heated knife process. Therein

lies the heart of the matter for without some type of heat

the rivet head could not be fashioned and Velo-Bind’s pat-

ent would not work except by one of the other methods.

Velo-Bind’s primary claims are said to deal with shear-

ing the pins after insertion. This alone is neither remark-

able or patentable. But the specifications leave in no doubt

the fact that tl. machine is designed not only to cut the

excess pins after they have entered the opposing strip, but

to soften them and then by force to hammer them into the

rivet heads which hold the bound material together.

Fashioning these rivet heads is not simply cosmetic; it is

the essential aspect of the Velo-Bind machine. By contrast,

use of ratchet pins is the essential element of the 3-M ma-

A-25

chine. 3-M’s binding process is complete when the ratchet

pins have been inserted and locked. Unlike Velo-Bind's

device, it does not require a rivet head for security.

Under 35 U.S.C. § 112, the specifications describe the in-

vention, the manner and process of making and using it,

and are required to do so in “such full, clear, concise and

exact terms as to enable any person skilled in the art * * “

to make use of the same, and [to] set forth the best mode

contemplated by the investor for carrying out his in-

vention.” Noting that by the use of “means” terminology

“a claim shall be construed to cover the corresponding

structure, material or acts described in the specifications

and equivalents thereof,” (Op., p. [968], slip op. p. 2781),

the majority avoids the logical conclusion that in this case

claims-plus-specifications establish the indispensability of

some heating element. It states that Velo-Bind’s claims

merely relate to differential “shear means.” It bolsters this

position by reliance upon the testimony of Zimmerman,

Velo-Bind’s witness, to the effect that the “shear means”

function, hot or cold, operates simply to cut off the stud

ends. (Op. p. [969], slip op. p. 2782) I find this testimony

unacceptable in the face of the fact that when the actual

claims here are read in the light of the specifications it is

clear that the heating element is what makes this invention

work.

If on the other hand, the patents, claims and specifica-

tions are held to embrace any mechanism which joins

plastic strips by pins and then cuts off the excess length of

the pins, there would be nothing to “attain the degree of

novelty necessary to establish non-obviousness in the case

A-26

of a combination.” Lawrence v. The Gillette Company, et

al., 603 F.2d 68 (9th Cir. 1979). Nor should we look to the

claims alone in order to decide infringement, and then look

to the claims in the light of their specifications in deciding

validity. This court said in Wire Tie Machinery Co., et al. v.

Pacific Box Corp., 107 F.2d 54 (9th Cir. 1939) :

Appellant cannot be permitted to construe his claims

with reference to his drawings and specifications in

order to escape invalidity, and then in the next breath

seek to disregard the drawings and specifications in

order to spell infringement.

107 F.2d at 55.

The testimony of Zimmerman upon which the majority

places reliance, asserted that the function of the “shear

means” in the patented machine was simply to enable it to

accommodate different thicknesses of bound volumes. In

other words, that its effect was merely cosmetic. This is

completely inconsistent with the operation of the machine

taken in the totality of its claims and specifications.

I concur in the majority’s opinion to the extent that it

disapproves the award of damages for loss sales of un-

patented consumable supplies as well as its affirmance of

the trial court’s denial of treble damages and attorneys

fees but I would reverse the finding of infringement.

A-27

Appendix B

United States Court of Appeals

For the Ninth Circuit

No. 79-4448

No. 79-3338

Velo-Bind, Incorporated, a California corporation,

Plaintiff-Appellee and Cross-Appellant,

vs.

Minnesota Mining and Manufacturing Company,

a corporation; 3M Business Products Sales, Inc.,

a corporation; Ro-Bind Corporation, a corporation ;

and Rally Industries, a corporation,

Defendants-Appellants and Cross-Appellees.

[Filed July 14, 1981]

ORDER

Before: Duniway, Sneed and Poole, Circuit Judges

The petition of defendants-appellants for a rehearing

and the petition of appellee and cross-appellant for a

rehearing are each hereby denied.

A-28

Appendix C

In the United States District Court

for the Northern District of California

No. C-75-0911-WAI(SJ)

Velo-Bind, Incorporated, a California corporation,

Plaintiff,

vs.

Minnesota Mining and Manufacturing Company,

a corporation, et al.,

Defendants.

[Filed May 7, 1979]

ORDER

The motion of plaintiff Velo-Bind for permanent injune-

tion, treble damages, and attorneys fees was considered

by the Court at two hearings occurring on April 20 and

April 27, 1979, respectively. Fach of the memoranda filed

by the parties and the evidence and argument elicited at

the hearings was carefully considered.

The Court finds that plaintiffs are entitled to a perma-

nent injunction enjoining and restraining defendants

directly or indirectly from further manufacturing devices

found by the jury to infringe plaintiff’s patent. Defendant

has filed at the Court’s request, Proposed Findings of Fact

and Conclusions of Law which appear to be in order except

A-29

that the continued supplying by 3M of maintenance ma-

terials to persons who have already bought the device in

question should not be enjoined.

The Court further finds no sufficient equitable reason to

justify the increase in damages or the award of attorneys

fees. Therefore, upon the filing by the Court of Findings

of Fact and Conclusions of Law, judgment is ORDERED

entitled upon the jury’s verdict and said findings. The

Court will file its Findings and Conclusions on May 21,

1979,“ in the absence of any objections or request for

further hearing.

Dated: May 7, 1979

/s/ WILLIAM A. INGRAM

William A. Ingram

United States District Judge

*There were separate findings for the injunction that were in all

relevant respects identical to the findings in the judgment entered

May 18, 1979 ( Appendix D).

A-30

Appendix D

United States District Court

For the Northern District of California

Civil Action No. C-75-0911 WAI (SJ)

Velo-Bind, Incorporated, a California corporation,

Plaintiff,

vs.

Minnesota Mining and Manufacturing Company,

a corporation; 3M Business Products Sales, Inc.,

a corporation; Ro-Bind Corporation, a corporation;

Rally Industries, a corporation; and Joe D. Giulie,

Defendants.

[Filed May 17, 1979

[entered in Civil Docket May 18, 1979]

JUDGMENT

This action came on for trial before the Court and a

jury, the Honorable William A. Ingram, District Judge,

presiding; the issues having been duly tried; the Court

having directed a verdict in favor of plaintiff and against

deferdants on the defense of unclean hands in the prosecu-

tion of the patents in suit; and the jury having duly ren-

dered its verdict in favor of plaintiff Velo-Bind, Incorpo-

rated and against defendants Minnesota Mining and Man-

ufacturing Company, a Delaware corporation, 3M Business

Products Sales, Inc., a Delaware corporation, Ro-Bind

Corporation, formerly a California corporation, Rally In-

A-31

dustries, formerly a California corporation, and Joe D.

Giulie in the sum of $3,934,333; defendants, and each of

them, having moved the Court for judgment notwithstand-

ing the verdict and for new trial and the Court, except as

to defendant Joe D. Giulie, having denied each of said

motions by its Memorandum of Decision on Motions for

Judgment Notwithstanding the Verdict and For New

Trial; plaintiff having moved the Court for a permanent

injunction and the Court having made and filed its Find-

ings of Fact and Conclusions of Law; Order for Permanent

Injunction granting said motion and issuing said per-

manent injunctiou; and, plaintiff having moved the Court

for increased damages and attorneys’ fees and the Court

having denied said motions,

IT IS HEREBY ORDERED, ADJUDGED AND DE-

CREED as follows:

1. This Court has jurisdiction over the parties and

over the subject matter in issue.

2. Claims 1, 2 and 3 of United States Letters Patent

No. 3,608,117, Claims 1 and 7 of United States Letters

Patent No. 3,756,625 and United States Letters Patent

No. D227,195 are good and valid in law.

3. Plaintiff Velo-Bind, Incorporated is possessed of the

entire right, title and interest in and to said Letters Patent

Nos. 3,608,117, 3,756,625 and D227,195, together with the

right to sue for and collect for damages for infringement

thereof and has been possessed thereof continuously since

the issuance of each of said Letters Patent.

4. Defendants Minnesota Mining and Manufacturing

Company, 3M Business Products Sales, Inc., Ro-Bind Cor-

A-32

poration and Rally Industries have each infringed Claims

1, 2 and 3 of Letters Patent No. 3,608,117, Claims 1 and 7

of Letters Patent No. 3,756,625 and Letters Patent No.

D227,195 by making and selling the machine in evidence as

the 3M Model 1000.

5. That plaintiff Velo-Bind, Incorporated recover from

defendants Minnesota Mining and Manufacturing Com-

pany, 3M Business Products Sales, Inc., Ro-Bind Corpora-

tion and Rally Industries, jointly and severally, the sum

of $3,934,333, with interest thereon at the rate of 7% com-

mencing November 20, 1978, and its costs of action.

6. Pursuant to the Memorandum of Decision on Motions

For Judgment Notwithstanding The Verdict and For New

Trial, filed April 5, 1979, that plaintiff take nothing against

defendant Joe D. Giulie and that said defendant Joe D.

Giulie not recover costs against the plaintiff.

7. Based upon and pursuant to the Findings of Fact

and Conclusions of Law on Motion for Permanent Injune-

tion; Order for Permanent Injunction, filed May 11, 1979,

that defendants Minnesota Mining and Manufacturing Com-

pany, a Delaware corporation, 3M Business Products Sales,

Inc., a Delaware corporation, Ro-Bind Corporation, for-

merly a California corporation, and Rally Industries, for-

merly a California corporation, and each of them, and

their respective agents, subsidiaries, affiliated companies

and employees, be and they hereby are permanently en-

joined from directly or indirectly infringing or inducing

or contributing to the infringement of Claims 1, 2 and 3

of United States Letters Patent No. 3,608,117, Claims 1

A-33

and 7 of United States Letters Patent No. 3,756,625 and

United States Letters Patent No. D227,195, and particu-

larly from manufacturing, selling, leasing, advertising, of-

fering for sale, transferring or conveying any machine

substantially of the design of that in evidence as the 3M

Model 1000 or any other machine which has been found to

infringe or which embodies any invention defined in any of

the claims of any of said patents.

The manufacture, use and sale of binding strips for use

in those 3M Model 1000 machines already sold prior to the

date of the Order for Permanent Injunction, filed May 11,

1979, is not, prohibited by the injunction awarded.

8. Each party hereto shall bear its own attorneys’ fees

and no attorneys’ fees are awarded to any party.

Dated: May 17, 1979

/s/ WILLIAM A. INGRAM

William A. Ingram

United States District Judge

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