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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385008_0514%3A1

## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1981
- **Citation:** 454 U.S. 1093

## Text

81-681

— — oct *

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?

ii

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

iv

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

vi

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.

2

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.

4

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.

5

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.

6

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.

7

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.

8

REASONS FOR GRANTING THE WRIT
U
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.

9

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

10

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-

11

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.

12

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.”

13

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).

14

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

15

& 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.

16

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.

17
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

18

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:

19

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.

21

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.

22

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-

23

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

24

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) ).

26

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,

V.

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,

V.

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,
v.

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.

A-3

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

A

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

A-5

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

A-6

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.“).

A-7

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

A-8

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

A-9

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

A-10

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.

A-11

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)).

A-12

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
ag

A-13

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

A-14

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

A-15

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

A-16

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

A-17

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

A-18

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.

A-19

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

A-20

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385008_0514%3A1. Public record. Not legal advice.