Petition for Writ of Certiorari — Dura Corp. v. TWM Manufacturing Co.

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Text

86-145

No.

Supreme Court, U.S.

FILED

50s same a memes s- 2 4

IN THE

Supreme Court of the An

OCTOBER TERM, 1985

JOSEPH F. SPANIOL, JR.

CLERK

iten St i7z—

<->

DURA CORPORATION and KIDDE, INC.,

——V

Petitioners,

TWM MANUFACTURING COMPANY, INC., and

TURNER QUICK-LIFT CORPORATION,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF

APPEALS

FOR THE FEDERAL CIRCUIT

ARTHUR D. GRAY

One Broadway

New York, New York 10004

(212) 425-7200

Counsel

Of Counsel:

FRANCIS T. CARR

PHILIP G. HAMPTON, II

KENYON & KENYON

One Broadway

New York, New York 10004

(212) 425-7200

for Petitioners

shee

QUESTIONS PRESENTED

1. Where a patented item and an unpatented staple article of

commerce are marketed together, whether it is proper to

include in a damage award for infringement of the patent

covering only the patented item, an award also based on the

value of the unpatented staple article?

2. Whether the United States Court of Appeals for the

Federal Circuit has so liberalized the standards for awarding

punitive damages for patent infringement as to chill the incen-

tive for those most able to challenge potentially invalid

patents?

PARTIES TO PROCEEDINGS BELOW

The petitioners in this action (and the defendants-appellants

below) are:

1. Dura Corporation

2. Kidde, Inc.

The respondents in this action (and the plaintiffs-appellees

below) are:

1. TWM Manufacturing Company, Inc.

2. Turner Quick-Lift Corporation

iil

TABLE OF CONTENTS

PAGE

Ne ws nud vk wk eale bse ve eaens 2

ee ys ik ba es deat ecaeseeecs 3

Constitutional Provisions and Statutes Involved....... 3

es ocean seacesecacsecen 3

Reasons for Granting the Writ...................... 7

ee rk hci vicabecvesvsess 7

B. Damages Should Not Be Awarded On Unpatenied

Staple Accessories Which Do Not Infringe The

Patent And Are Easily Segregated From The

I esters ccecesccccecan 9

EE )

2. The Federal Circuit’s Application Of The En-

tire Market Value Rule Is Inconsistent With

The Staple Goods Test Of Dawson Chemical

OS 10

C. The Federal Circuit Has Improperly Liberalized

The Award of Punitive Damages In Patent Cases 12

isin wavicveveveses 17

Appendix

A. Opinion Below of the United States Court of

Appeals for the Federal Circuit. 229 U.S.P.Q. 525

Ne cpa ede sbrusees la

B. Opinion of the United States District Court for

the Eastern District of Michigan Dismissing The

Complaint Based on Laches and Estoppel. 189

Seimeeen. ae ceeee, WEIR, 1975)... 2... 2c enne i3a

. Opinion of the United States Court of Appeals for

the Sixth Circuit Reversing the Dismissal of the

Complaint for Laches and Estoppel. 592 F.2d 346

Se SPM bcc cca Rasa neh bs Lace hse b as nes

. Opinion of the United States District Court for

the Eastern District of Michigan Finding the Pat-

ent-in-Suit To Be Valid and Infringed. 213

U.S.2O. 423 ED. WR. TOGE) oc cns vavececes

. Opinion of the United States Court of Appeals for

the Sixth Circuit Affirming the Validity and In-

fringement Judgment. 722 F.2d 1261 (6th Cir.

RRR GR Sis Ee mae Eee ae etre cae

. Report of the Special Master Awarding

$31,288,496.00 in Damages for Patent Infringe-

a, Sere a ee ae ae ee

. Transcript of the Oral Adoption of the Report of

the Special Master by the United States District

Court for the Eastern District of Michigan. Unre-

eer errr rere Pr re rs ree

. Order by Court of Appeais for the Federal Circuit

denying Petition for Rehearing ................

PAGE

26a

33a

44a

64a

94a

TABLE OF AUTHORITIES

Cases PAGE

American Original Corp. v. Jenkins Food Corp., 774

Pee re es es POO so a caw an daendecceens sen 13

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

ee fe SS ry rae ee ee 12

Baumstimler v. Rankin, 677 F.2d 1061 (Sth Cir. 1982).. 14

B.B. Chemical Co. v. Ellis, 314 U.S. 495 (1942)....... 11

Carbice Corp. of America v. American Patents Develop-

ment Corp., 283 U.S. 27 (19351)... cc ccc csccccces 1]

Central Soya Co. v. Geo. A. Hormel & Co., 723 F.2d

eget ee | ee een 13, 16

Clark v. Wooster, 119 U.S. 322 (1886) ............... 15

CPG Products Corp. v. Pegasus Luggage, Inc., 776 F.2d

Pe ee Me ORES yb kv oka oe CRW eA CPanel ocean 13

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

TORUS So vias shane bee haa boeane cee nanae 10, 11

Deere & Co. v. International Harvester Co., 658 F.2d

Fea? Greet Sat: EOE hick carck edu hoe os tae Wee 14

Deere & Co. v. International Harvester Co., 710 F.2d

Fare Ges Ga BN 44-0 ak HEC ee weeks 7,9

Deyerle v. Wright Mfg. Co., 496 F.2d 45 (6th Cir. 1974) 14

Dickey-John Corp. v. International Tapetronics Corp.,

Te Dee Bee OU SD nv vc hha ee cundiduws 14

Eltra Corp. v. Basic Inc., 599 F.2d 745 (6th Cir.), cert.

Genied, 444 U.S. Das CGTID oon cns cut vacucasvusve 14

Gaddis v. Calgon Corp., 506 F.2d 880 (Sth Cir. 1975) .. 14

General Motors Corp. v. Devex Corp., 461 U.S. 648

LODGE cas ova ote hak ewracthbeeee eee eee 15

Georgia-Pecific Corp. v. United States Plywood Corp.,

Bae ee, SOP Ca. 0a, Us EPOOD vn cerned sanscccacs

Great Northern Corp. v. Davis Core & Pad Co., 782

Pe I: Gude SUES Gch chou neetscectesasenns

Hammerquist v. Clarke’s Sheet Metal, Inc., 658 F.2d

OME fis ia bie EM b ad EUKS OAKS BAS

Henry v. A.B. Dick Co., 224 U.S. 1 (1912)...........

H.K. Porter Co. v. Goodyear Tire & Rubber Co., 536

i So) 8 Te eee eee ere or

Hughes Tool Co. v. Dresser Industries, Inc., unreported

King Instrument Corp. v. Otari Corp., 767 F.2d 853

Me errr eerie ices eer e yee

Kloster Speedsteel AB v. Stora Kopparbergs Bergslags

AB, Nos. 85-2174, slip op. (Fed. Cir. 1986).........

Kori Corp. v. Wilco Marsh Buggies and Draglines, Inc.,

761 F.2d 649 (Fed. Cir.), cert. denied, 106 S.Ct. 230

NG kas s VG kd OR RKA LASS AWEA WHE OER ESRD OE OX

Lam, Inc. v. Johns-Manville Corp., 718 F.2d 1056 (Fed.

ee Raed 6c drs KASAM ROM AARE RECARO OR Oe

Lam, Inc. v. Johns-Manville Corp., 668 F.2d 462 (10th

Cir.), cert. denied, 456 U.S. 1007 (1982)............

Lear, Inc. v. Adkins, 395 U.S. 653 (1969) ............

Leinoff v. Louis Milona & Sons, 726 F.2d 734 (Fed. Cir.

Leitch Mfg. Co. v. Barber Co., 302 U.S. 458 (1938)...

Maloney-Crawford Tank Corp. v. Sauder Tank Co., 511

oe 8 ft oe, oe Tere ee error

Mercoid Corp. v. Mid-Continent Investment Co., 320

os % 8. rere ee rr rT eer Tre Corr se: err

POO Cet it A sR On

Vii

Mercoid Corp. v. Minneapolis-Honeywell Regulator

oe Re ee abet eae

Milgo Electronic Corp. v. United Business Communica-

tions Inc., 623 F.2d 645 (10th Cir.), cert. denied, 449

pe ES ie he as te ee a Sc Calwe Gx AM back

Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488

| GN By Sees Gru Bape Np area eee ig ts Oe

Motion Picture Patents Co. v. Universal Film Mfg. Co..,

I a

Norfin, Inc. v. International Business Machines Corp.,

ee eee ee ED i ices cennvecenseess

Novo Industri A/S v. Travenol Laboratories, Inc., 677

See Re CP ee OU a a cacao s one avetkneés>

Paper Converting Machine Co. v. Magna-Graphics

Corp., 680 F.2d 483 (7th Cir. 1962) ................

Paper Converting Machine Co. v. Magna-Graphics

Corp., 745 F.2d 11 (Fed. Cir. 1984)................

Paper Converting Machine Co. v. Magna-Graphics

Corp., 785 F.2d 1013 (Fed Cir. 1986)...............

Power Lift, Inc. v. Lang Tools, Inc., 774 F.2d 478 (Fed.

8 res er rrr er ere hn eee

Radio Steel & Mfg. Co. v. MTD Products, Inc., 788

Pua Rae ns Ms Os cy ks ca une bins cecacad eas

Ralston Purina Co. v. Far-Mar-Co., Inc., 772 F.2d 1570

a re rrr ree ee

Rosemount, Inc. v. Beckman Instruments, Inc., 727

Fiat Pe es CR, SOEs 5 kk Kans pea Ad ade cb eu ees

Saginaw Products Corp. v. Eastern Airlines, 615 F.2d

RES MEE, CUE SSGhs Chew ew k 06s w seek eweResun

PAGE

Vill

Saturn Mfg. Inc. v. Williams Patent Crusher & Pulver-

izer Co., 713 F.2d 1347 (8th Cir. 1983) .............

S.C. Johnson & Son v. Carter-Wallace, Inc., 781 F.2d

ey I nn ee ees

Seymour v. McCormick, 57 U.S. (16 How.) 480 (1854)

Shatterproof Glass Corp. v. Libbey-Owens Ford Co..,

758 F.2d 613 (Fed. Cir.), cert. dismissed, 106 S.Ct. 340

ee ee ea Se ee eu ces tab able

Shiley, Inc. v. Bentley Laboratories, Inc., Appeal No.

85-2226 (Fed. Cir. June 16, 1986)..................

Signode Corp. v. Weld-Loc Systems, Inc., 700 F.2d 1108

ee Ce ete Peck eee baa Ge un bee

Smith International, Inc. v. Hughes Tool Co., 229

ae eRG FY Os MU I og Se

Square Liner 360°, Inc. v. Chisum, 691 F.2d 362 (8th

Se Seah tel ae SU peat ee tee ee ek

State Industries, Inc. v. A.O. Smith Corp., 751 F.2d

Se a ED kd cic cu wanes Saebba ve wen eke l

Stickle v. Heublein, Inc., 716 F.2d 1550 (Fed. Cir. 1983)

Topliff v. Topliff, 145 U.S. 156 (1892) ...............

Trio Process Corp. v. L. Goldstein’s Sons, 612 F.2d 1353

(3rd Cir.), cert. denied, 449 U.S. 827 (1980)

Underwater Devices Inc. v. Morrison-Knudsen Co., 717

im @t f | eo B . ee |

Velo-Bind, Inc. v. Minnesota Mining & Mfg. Co., 647

SS kf. Fee | Eee rr re eae

Wahl v. Carrier Mfg Co., 511 F.2d 209 (7th Cir. 1975)

Western Electric Co. v. Stewart-Warner Corp., 631 F.2d

Se ee ch cvs ehhh sch chk ee eerweee es

PAGE

2, 13

—

White v. Mar-Bel, Inc., 509 F.2d 287 (Sth Cir. 1975) ...

Wilden Pump & Engineering Co. v. Pressed & Welded

Products Co., 655 F.2d 984 (9th Cir. 1981) .........

Yarway Corp. v. Eur-Control USA, Inc., 775 F.2d 268

Yoder Bros. Inc. v. California-Florida Plant Corp., 537

F.2d 1347 (Sth Cir. 1976), cert. denied, 429 U.S. 1094

Se nk ke ee AKG CARAS REERERE RR OAERS CE BESS

Periodicals

Ghloz, Willful Infringement and “Magic Words”—The

Effect of Opinions of Counsel on Awards of Increased

Damages And Attorney Fees, 66 J. Pat. Off. Soc’y

SP. on. Chae CRA ere k eRe Reha Rees acab’

Perry, The Surprising New Power of Patents, Fortune,

fy ee OF 6B) eeeeeverreTec ee Tir err eee

Statutes

_ Lib tag Ps, eee ear res yr rey eye 3, 1

Oe Woes ee 0 os chs cae Uevauckeeces succes eeseees

2. iS

~s —

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

pea

DURA CORPORATION and KIDDE, INC.,

Petitioners,

—Vvs.—

TWM MANUFACTURING COMPANY, INC., and

TURNER QUICK-LIFT CORPORATION,

Respondents.

— —

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

Petitioners, Dura Corporation and Kidde, Inc.' (hereinafter

collectively referred to as “Dura”), respectfully pray that a

Writ of Certiorari issue to review the judgment entered in favor

of respondents, TWM Manufacturing Company, Inc. and

Turner Quick-Lift Corp. (hereinafter collectively referred to as

“TWM”) by the United States Court of Appeals for the

Federal Circuit in its causes numbered 85-2153, 85-2237 and

85-2273.

l Kidde, Inc. has interests in the following non-wholly owned subsidi-

aries: Fenwal Controls of Japan, Ltd.; Nippon SSP Co. Ltd.; Artesa-

nias Baja, S.A.; Walter Kidde Sales & Service Co.; Walter Kidde S.A.

Industria E. Comercio. Dura has no subsidiaries.

Opinions Below

The opinion of the United States Court of Appeals for the

Federal Circuit is reported at 229 U.S.P.Q. 525 (Fed. Cir. 1986)

and reprinted in the Appendix to this Petition at la. The

following other opinions have been issued in this case and are

reprinted in the Appendix to this Petition at the pages indi-

cated:

Opinion of the United States District Court for the

Eastern District of Michigan dismissing the complaint

based on laches and estoppel. 189 U.S.P.Q. 274 (E.D.

Mich. 1975), 13a.

Opinion of the United States Court of Appeals for the

Sixth Circuit reversing the dismissal of the complaint for

laches and estoppel. 592 F.2d 346 (6th Cir. 1979), 26a.

Opinion of the United States District Court for the

Eastern District of Michigan finding the patent-in-suit to

be valid and infringed. 213 U.S.PQ. 423 (E.D. Mich.

1981), 33a.

Opinion of the United States Court of Appeals for the

Sixth Circuit affirming the validity and infringement

judgment. 722 F.2d 1261 (6th Cir. 1983), 44a.

Report of the Special Master awarding $31,288,496.00 in

damages for patent infringement. Unreported, 64a.

Transcript of the oral adoption of the Report of the

Special Master by the United States District Court for the

Eastern District of Michigan. Unreported, 94a.

Denial of Petition for Rehearing by the Court of Appeals

for the Federal Circuit. Unreported, 97a.

Jurisdiction

The judgment of the Court of Appeals for the Federal

Circuit was entered on Aprii 25, 1986, a timely petition for

rehearing was filed on May 9, 1986 and denied on May 22,

1986 and this Petition for a Writ of Certiorari was filed within

ninety (90) days of that denial. Jurisdiction of this Court is

invoked under 28 U.S.C. § 1254(1).

Constitutional Provisions and Statutes Involved

The case involves Section 284 of the Patent Act of 1952, 35

U.S.C. § 284 (1976), reprinted below.

§ 284. Damages

Upon finding for the claimant the court shall award the

claimant damages adequate to compensate for the in-

fringement but in no event less than a reasonable royalty

for the use of the invention by the infringer, together with

interest and costs as fixed by the court.

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.

Statement of the Case

In this patent infringement case, original jurisdiction of

which was premised on 28 U.S.C. § 1338(a), the Court of

Appeals for the Federa! Circuit affirmed a damage award of

$31,288,496.00. Of the more chan $31,000,000 awarded, only

about $5,000,000 represents damages based on the sale of the

patented lift-axle suspension, the balance being made up of

damages for the sale of unpatented parts, punitive damages

and prejudgment interest. This petition will demonstrate that

the Court of Appeals for the Federal Circuit has so liberalized

the standards for determining damages in patent cases as to

demand the intervention of this Court.

The patent involved in this case covers a device called a

lift-axle suspension. It is a spring-like device used on large

trucks which causes an extra axle and set of wheels to be

lowered in contact with the road when the truck is carrying a

heavy load and causes the extra axle and wheels to be raised

from the road when the truck is empty and does not need the

additional support. The extra axle and wheels are ordinary,

staple articles of commerce in no way specialiy adapted for the

patented suspension. In fact, the inventor testified that he

obtained the first axles and wheels which were used with his

invention from a junkyard.

When the patented suspension is marketed, the seller, often

as a convenience to the customer and acting as a middleman,

obtains the wheels and axle from an outside supplier and resells

these unpatented staple wheels and axle to the customer to-

gether with the suspension.’ In determining damages in this

case, the Magistrate awarded TWM a royalty of thirty percent

(30%) in certain years and TWM’s actual lost profits in other

years where it could prove that its lost profits were higher than

the thirty percent (30%) royalty. In making both calculations,

the Magistrate included in the royalty and profit base, the

value of the unpatented wheels and axles sold with the patented

suspension. There is undisputed evidence that, for each sale,

the cost of the unpatented wheels and axle is approximately the

same as the cost of the patented suspension. Thus, the inclu-

sion of these unpatented parts in the damage calculation

effectively doubled the damage award.’ In short, TWM has

2 About 10% to 20% of the time the suspension is sold without the

wheels and axles.

3 This wrong was then compounded when the damages were trebled.

been awarded millions of dollars in damages because Dura sold

the same staple wheels and axles with its suspension which the

suspension’s inventor originally obtained from a junkyard.

The Court of Appeals for the Federal Circuit justified the

award of damages on these unpatented parts by relying on the

“entire market value” rule. Quoting an earlier case of one of

its predecessor courts, it stated:

It is the “ ‘financial and marketing dependence on the

patented item under standard marketing procedures’

which determines whether the non-patented features of a

machine should be included in calculating compensation

for infringement.” 229 U.S.P.Q. at 528 (citation omitted).

This case is the latest in a line of cases from the Court of

Appeals for the Federal Circuit which has awarded damages

for unpatented parts simply because the unpatented parts

happen to be marketed with the patented device. Under the

rationale of the Court of Appeals for the Federal Circuit,

almost anything which happens to be marketed with a patented

invention is “market dependent” on the patent and should be

included in the damage calculation, regardless of whether those

unpatented parts have any technological dependence on the

patented invention. Such improper utilization of the entire

market value rule is contrary to the rationale of many of this

Court’s decisions which restrict the extension of the patentee’s

economic leverage to unpatented staple articles of commerce

and is one way in which the Court of Appeals for the Federal

Circuit is unjustly increasing the damage awards for patent

infringement.

A second liberalization undertaken by the Court of Appeals

for the Federal Circuit is to considerably loosen the standards

for the awarding of punitive damages. In this case, prior to the

issuance of his patent, the patentee sent an unsolicited copy of

a patent specification (without claims), under no obligation of

secrecy, to Dura and a number of other manufacturers in an

attempt to interest them in marketing the lift-axle suspension

described in the specification. More than one year later, Dura

marketed a suspension which the District Court found to be

similar to the suspension described in the patent specification.

There was no proof that Dura had copied the patented suspen-

sion. In fact, Dura proved that it had purchased its suspension

from an outside designer. TWM theorized that Dura had

conspired with the outside designer to copy the patented

suspension, but could offer no proof to support its theory.

To remedy TWM’s failure of proof, the District Court

applied a copyright theory of liability to find Dura to be a

willful infringer. The District Court held that because Dura had

access to the unsolicited patent specification and because its

Suspension was similar to the suspension described in the

specification, that this “access plus similarity” equaled copy-

ing. The District Court equated this imputed “copying” with

willful infringement and awarded TWM_ more than

$17,000,000 in enhanced damages on that basis. There was no

showing that Dura acted in bad faith and there was no showing

of actual copying.

The Court of Appeals for the Federal Circuit affirmed the

award, holding that since the “access plus similarity” finding

was the law of the case, that was sufficient to uphold the

award of treble damages, no further showing of bad faith

being required. This is the latest example of the loose standards

which the Court of Appeals for the Federal Circuit has been

applying in upholding punitive damage awards against defen-

dants in patent cases.

Reasons for Granting the Writ

A. Introduction

In an overreaction to the large number of patents held

invalid before its creation, the Court of Appeals for the

Federal Circuit has gone out of its way to put teeth back into

the patent laws. This Court may take judiciai notice of the fact

a any eee

that various articles have appeared in the public press com-

menting on this propensity of the Federai Circuit. See, e.g.

Perry, The Surprising New Power of Patents, Fortune, June

23, 1986 at 57:

Since the Court of Appeals for the Federal Circuit was

established in 1982 and was charged with handling all

patent infringment appeals patents have more frequently

been upheld, and the penalties imposed for infringing

have become severe.

One of the prime methods used by the Federal Circuit to

accomplish this purpose has been to send a message to the

District Courts to award substantial damages against patent

infringers. And the District Courts have been listening. Re-

cently, the size of damage awards in patent cases have been

greatly in excess of those which preceded the creation of the

Federal Circuit. In addition to the instant case, witness the

following examples:

$28 ,462,664—Deere & Co. v. International Harvester

Co., 710 F.2d 1551 (Fed. Cir. 1983)

$121,504,958—Hughes Tool Co. v. Dresser Industries,

Inc., unreported.

$44 ,248,137—Shiley, Inc. v. Bentley Laboratories, Inc.,

Appeal No. 85-2226 (Fed. Cir. June 16, 1986)

$204,810,349—Smith International, inc. v. Hughes Tool

Co., 229 U.S.P.Q. 81 (C.D. Cal. 1986)

These awards prompted the same Fortune commentator to

note, “What is really giving management the willies is the trend

in damages.” [bid.

The size of these awards is in part due to the fact that the

Federal Circuit has liberalized the criteria for awarding patent

damages in many areas. This petition presents two of those

areas which have been particularly abused and which demand

the intervention of this Court. If this Court does not intervene,

and the Federal Circuit continues inspiring and supporting

these huge awards, then defendants will be intimidated with

threats of large damage awards and the incentive for challeng-

ing suspect patents will be considerably chilled. A system

where suspect patents go unchallenged is no better than a

system where too many patents are invalidated.

It is respectfully submitted that this petition should be

granted to indicate to the Federal! Circuit and the district courts

that it is imperative to maintain a proper balance within the

patent system.

B. Damages Should Not Be Awarded On Unpatented Staple

Accessories Which Do Not Infringe The Patent And Are

Easily Segregated From The Patented Invention

1. Introduction

This case is the most recent in a line of cases where the

Federal Circuit has affirmed the awarding of damages on

unpatented parts. In Kori Corp. v. Wilco Marsh Buggies and

Draglines, Inc., 761 F.2d 649, 656 (Fed. Cir., cert. denied, 106

S. Ct. 230 (1985), the Federal Circuit, in awarding damages on

the entire value of a marsh craft even though the patent only

related to part of the craft, looked solely to financial and

marketing criteria, stating:

Under the “entire market value rule” it is the “financial

and marketing dependence on the patented item under

standard marketing procedures” which determines

whether the non-patented features of a machine should be

included in calculating compensation for infringement.

(Citations omitted).

In Paper Converting Machine Co. v. Magna-Graphics

Corp., 745 F.2d 11, 22-23 (Fed. Cir. 1984), the Court affirmed

an award of damages on an entire toilet paper rewinding line

consisting of several discrete machines even though the patent

related to only one portion of one machine and the other

ata rth i vel eee a

machines which made up the line clearly had separate uses.

Again, the Court applied a market dependence test, stating:

None of the auxiliary units here are integrated parts of the

[patented] rewinder; rather they each have separate usage.

Paper Converting therefore obviously cannot prevent the

manufacture or sale of these auxiliary units. This fact,

however, does not control our decision. The deciding

factor, rather, is whether “[nJormally the patentee (or its

licensee} can anticipate sale of such unpatented compo-

nents as well as of the patented” ones.

Cf. Deere & Co. v. International Harvester Co., 710 F.2d 1551,

1558-59 (Fed. Cir. 1983), where the entire market value rule

was used as a justification to consider the value of sales of

unpatented parts in arriving at a large royalty figure. Finally, in

this case, the Court affirmed an award of damages based in

part on the sale of unpatented wheels and axles.

The only justification proffered by the Court for these

awards is whether the patentee usually would sell the unpa-

tented parts with the patented device. If the patentee usually

sells the patented and unpatented parts together, the Federal

Circuit awards damages for the unpatented parts on the theory

that it is the patent which is giving the unpatented parts their

value.

By so applying the entire market value rule, the Federal

Circuit has approved the anomalous result that damages for

patent infringement are based upon non-patent marketing

criteria. While the Federal Circuit admits that a patentee

cannot prevent the manufacture or sale of unpatented parts,’

and therefore a patentee cannot condition the sale of the

patented device upon the purchase of the unpatented parts, if

customers, as a matter of convenience, buy the unpatented

parts at the same time that they buy the patented device, the

4 See quoted passage from Paper Converting, supra.

5 See discussion of patent-antitrust cases, infra at 10-12.

Federal Circuit deems the unpatented parts to be so related to

the patent as to require the payment of damages for their sale

and use. It is respectfully submitted that the “entire market

value” rule, as applied by the Federal Circuit, is inconsistent

with other rules of law concerning unpatented parts announced

by this Court and other courts of appeal and should not be

permitted to be used in this manner to unduly increase damage

awards in patent cases.

2. The Federal Circuit’s Application Of The Entire Market

Value Rule Is Inconsistent With The Staple Goods Test Of

Dawson Chemical Co. v. Rohm & Haas Co.

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

176 (1980), this Court held that a patentee of a method patent

for the application of an unpatented herbicide could prevent

the use or sale of that herbicide by others only if the herbicide

was a non-staple article of commerce having no substantial

non-infringing use. Conversely, if the herbicide was a staple

article of commerce having substantial non-infringing uses,

then anyone was free to deal in the herbicide, even if it was

eventually used by a customer in an infringing manner.

The result of the Federal Circuit’s resort to a market depen-

dence analysis in its application of the entire market value rule

conflicts with the basic premise underlying Dawson. Under the

Federal Circuit’s analysis, the patentee is awarded damages on

the sale of staple, unpatented parts, which under Dawson he

cannot control, simply because, in the market, the patent helps

the patentee to sell those unpatented parts. However, the

theory that benefits to be realized from the sale of unpatented

parts should inure to the patentee, merely because the patent

helps to create the market for the unpatented parts, has been

rejected by this Court in the Dawson patent-antitrust interface

line of cases and it should be rejected in patent damage cases as

well.

The market dependence analysis of the Federal Circuit is

identical to the rationale used in Henry v. A.B. Dick Co., 224

a ee a es ee

U.S. 1 (1912), to permit the patentee to control unpatented

parts. In A.B. Dick the patentee of a printing machine was

permitted to require purchasers of the machine to purchase

unpatented staple items, such as ink and paper, from the

patentee. The theory of the A.B. Dick Court, as explained by

this Court in Dawson at 190 was:

The [A.B. Dick] Court reasoned that the market for these

supplies was created by the invention, and that sale of a

license to use the patented product, like sale of other

species of property, could be limited by whatever condi-

tions the property owner wished to impose.

This reasoning of A.B. Dick was subsequently rejected by

this Court in a long line of cases which defined the bounds of

the patent-antitrust interface as it applied to unpatented goods.

Thus, in cases like Motion Picture Patents Co. v. Universal

Film Mfg. Co., 243 U.S. 502 (1917); Carbice Corp. of America

v. American Patents Development Corp., 283 U.S. 27 (1931);

Leitch Mfg. Co. v. Barber Co., 302 U.S. 458 (1938); Morton

Salt Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942) and B.B.

Chemical Co. v. Ellis, 314 U.S. 495 (1942), patent owners were

forbidden from controlling the sale of unpatented staple parts

or devices just because these parts or devices were used with a

patented device. These cases reached their high-water mark in

Mercoid Corp. v. Mid-Continent Investment Co., 320 U.S. 661

(1944), and Mercoid Corp. v. Minneapolis-Honeywell Regula-

tor Co., 320 U.S. 680 (1944), which forbade the patent owner

from controlling an unpatented part even though that part was

not a staple and had no use other than to be used in a manner

to infringe the patent. In reaction to the Mercoid cases,

Congress passed § 271(d) of the Patent Act of 1952, which, as

this Court held in Dawson, was intended to permit the patentee

some control over unpatented parts if those parts were non-

Staple articles of commerce having no substantial non-infring-

ing use.

Thus, this Court has drawn the patent-antitrust interface line

as to what unpatented parts the patentee can legitimately

contro! berwear svank and nanstanle articles of commerce.

The Federal Circuit’s application of the entire market value

rule erodes that line by allowing the patentee to collect dam-

ages for unpatented parts which are staple articles of com-

merce having many non-infringing uses. The staple, non-staple

distinction should be applied to patent damage cases in the

same manner as it is applied in patent-antitrust cases.

Indeed, other courts of appeal, in patent damage cases

considered before the establishment of the Federal Circuit,

have refused to award damages based on the use or sale of

unpatented staple supplies. See, e.g., Signode Corp. v. Weld-

Loc Systems, Inc., 700 F.2d 1108, 1113-14 (7th Cir. 1983);

Velo-Bind, Inc. v. Minnesota Mining & Mfg. Co., 647 F.2d

965, 972-74 (9th Cir. 1981) and Autographic Register Co. v.

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

It is respectfully submitted that this Court should grant

certiorari to consider whether the Federal Circuit’s approval of

damage awards for the use and sale of unpatented parts

conflicts in principle with decisions of this Court and therefore

has led to an improper increase in damages for patent infringe-

ment.

C. The Federal Circuit Has Improperly Liberalized The

Award Of Punitive Damages In Patent Cases

The awarding of punitive damages in patent cases is gov-

erned by 35 U.S.C. § 284 which provides in part:

“

. the court may increase the damages up to three

times the amount found or assessed.”

In order to be entitled to punitive damages, the patentee

must prove that the infringer acted in bad faith. As the Federal

Circuit has stated in State Industries, Inc. v. A.O. Smith

Corp., 751 F.2d 1226, 1237 (Fed. Cir. 1985) quoting Stickle v.

Heublein, Inc., 716 F.2d 1550, 1565 (Fed. Cir. 1983):

The Court must determine that the infringer acted in

disregard of the patent, that is, that the infringer had no

reasonable basis for believing it had a right to do the acts.

a ve

IE le in pe ta i hey ae

ae eee i ree eee

ail

However, the Federal Circuit has only been paying lip service

to its announced standard for the awarding of punitive dam-

ages. Since the formation of the Federal Circuit in October,

1982, to date, not including this case, it has had the question of

whether to award punitive damages against an infringer before

it twenty (20) times. In thirteen (13) cases where punitive

damages were awarded below, the Federal Circuit has affirmed

ten (10) times® and reversed only three (3) times.’ In seven (7)

cases where punitive damages were denied below, the Federal

Circuit has reversed three (3) times® and sent the case back for

consideration of punitive damages and has affirmed the denial

four (4) times.” Thus, of twenty (20) punitive damage cases, the

Federal Circuit has supported the awarding of punitive dam-

ages against infringers thirteen (13) times, or almost two-thirds

(2/3) of the time.

6 Paper Converting Machine Co. v. Magna-Graphics Corp., 785 F.2d

1013 (Fed. Cir. 1986); Great Northern Corp. v. Davis Core & Pad Co.,

782 F.2d 159 (Fed. Cir. 1986); Ralston Purina Co. v. Far-Mar-Co.,

Inc., 772 F.2d 1570 (Fed. Cir. 1985); Power Lift, Inc. v. Lang Tools,

Inc. , 774 F.2d 478 (Fed. Cir. 1985); Kori Corp. v. Wilco Marsh Buggies

and Draglines, Inc., 761 F.2d 649 (Fed. Cir.), cert. denied, 106 S.Ct 230

(1985); Rosemount, inc. v. Beckman Instruments, Inc., 727 F.2d 1540

(Fed. Cir. 1984); Leinoff v. Louis Milona & Sons, 726 F.2d 734 (Fed.

Cir. 1984); Central Soya Co. v. Geo. A. Hormel & Co., 723 F.2d 1573

(Fed. Cir. 1983); Lam, Inc. v. Johns-Manville Corp., 718 F.2d 1056

(Fed. Cir. 1973); Underwater Devices Inc. v. Morrison-Knudsen Co.,

717 F.2d 1380 (Fed.Cir. 1983).

7 Yarway Corp. v. Eur-Control USA, Inc., 775 F.2d 268 (Fed. Cir.

1985); State Industries, Inc. v. A.O. Smith Corp., 751 F.2d 1226 (Fed.

Cir. 1985); Stickle v. Heublein, Inc., 716 F.2d 1550 (Fed. Cir. 1983).

8 Kloster Speedsteel AB vy. Stora Kopparbergs Bergslags AB, Nos.

85-2174, slip. op. (Fed. Cir. 1986); S.C. Johnson & Son v. Carter.

Wallace, Inc., 781 F.2d 198 (Fed. Cir. 1986); CPG Products Corp. v.

Pegasus Luggage, Inc., 776 F.2d 1007 (Fed. Cir. 1985).

9 Radio Steel & Mfg. Co. v. MTD Products, Inc., 788 F.2d 1554 (Fed.

Cir. 1986); American Original Corp. v. Jenkins Food Corp., 774 F.2d

459 (Fed. Cir. 1985); King Instrument Corp. v. Otari Corp., 767 F.2d

853 (Fed. Cir. 1985); Shatterproof Glass Corp. v. Libbey-Owens Ford

Co., 758 F.2d 613 (Fed. Cir.), cert. dismissed, 106 S. Ct. 340 (1985).

On the other hand, in a ten (10) year period, prior to the

formation of the Federal Circuit, i.e., from October 1982 back

to the beginning of 1972, the regional courts of appeal, which

previously decided patent cases, had punitive damage questions

presented twenty-three (23) times. In fifteen (15) cases where

punitive damages were awarded below, the regional circuits

affirmed nine (9) times’® and reversed six (6) times.'' In eight

(8) cases where punitive damages were denied below, the

regional courts of appeal reversed only once’ and sent the case

back for consideration of punitive damages and affirmed the

denial seven (7) times.'? Thus, of twenty-three (23) punitive

damage cases, the regional courts of appeal supported the

10 Paper Converting Machine Co. v. Magna-Graphics Corp., 680 F.2d

483 (7th Cir. 1982); Dickey-John Corp. vy. International Tapetronics

Corp., 710 F.2d 329 (7th Cir. 1983); Novo Industri A/S v. Travenol

Laboratories, Inc., 677 F.2d 1202 (7th Cir. 1982); Lam, Inc. v.

Johns-Manville Corp., 668 F.2d 462 (10th Cir.), cert. denied, 456 U.S.

1007 (1982); /1ammerquist v. Clarke’s Sheet Metal, Inc., 658 F.2d 1319

(9th Cir. 1981); Norsin, Inc. v. International Business Machines Corp.,

625 F.2d 357 (10th Cir. 1980); Milgo Electronic Corp. v. United

Business Communications Inc., 623 F.2d 645 (10th Cir.), cert. denied,

449 U.S. 1066 (1980); Trio Process Corp. v. L. Goldstein’s Sons, 612

F.2d 1353 (3rd Cir.), cert. denied, 449 U.S. 827 (1980); Deyerle v.

Wright Mfg, Co., 496 F.2d 45 (6th Cir. 1974).

11 Baumstimler v. Rankin, 677 F.2d 1051 (Sth Cir. 1982); Wilden Pump

& Engineering Co. v. Pressed & Welded Products Co., 655 F.2d 984

(9th Cir. 1981); Deere & Co. v. International Harvester Co., 658 F.2d

1137 (7th Cir. 1981); Eltra Corp. v. Basic Inc., 599 F.2d 745 (6th Cir.),

cert. denied, 444 U.S. 942 (1979); Yoder Bros. Inc. v. California-

Florida Plant Corp., 537 F.2d 1347 (Sth Cir. 1976), cert. denied, 429

U.S. 1094 (1977); Gaddis v. Calgon Corp., 506 F.2d 880 (Sth Cir.

1975).

12 Saturn Mfg. Inc. v. Williams Patent Crusher & Pulverizer Co., 713

F.2d 1347 (8th Cir. 1983).

13 Square Liner 360°, Inc. v. Chisum, 691 F.2d 362 (8th Cir. 1982);

Western Electric Co. v. Stewart-Warner Corp., 631 F.2d 333 (4th Cir.

1980); Saginaw Products Corp. v. Eastern Airlines, 615 F.2d 1136 (6th

Cir. 1980); H. K. Porter Co. v. Goodyear Tire & Rubber Co., 536 F.2d

1115 (6th Cir. 1976); Maloney-Crawford Tank Corp. v. Sauder Tank

Co., Si1 F.2d 10 (10th Cir. 1975); Wahl v. Carrier Mfg. Co., 511 F.2d

209 (7th Cir. 1975); White v. Mar-Bel, Inc., 509 F.2d 287 (Sth Cir.

1975).

———— ee

awarding of punitive damages only ten (10) times, or less than

one-half (1/2) the time.

Petitioner submits that the rise in punitive damage awards in

patent cases is a result of the Federal Circuit’s very liberal

standards for judging the existence of willful infringement.

While 35 U.S.C. § 284 provides authority for the Court to

increase damages, it provides no guidelines as to the basis for

such an increase. Thus, the grounds for awarding punitive

damages in patent cases have been entirely judicially devel-

oped, centering on whether or not the infringement has been

willful. This jurisprudence has developed for almost one hun-

dred years with no guidance from this Court and with very

little guidance prior to that time.'* As a result of this lack of

direction in the area of punitive damages, the Federal Circuit

has had virtually a clean slate upon which to write. The fact

that the Federal Circuit has had about the same number of

punitive damage appeals in less than four (4) years as the

regional courts of appeal had in the previous ten (10) years is

evidence that the Federal Circuit has chosen to write upon its

clean slate in a manner which treats patent infringement as a

social evil rather than a business tort.

However, unlike most other torts, patent infringement has a

certain salutary purpose. It is frequently the only method by

which invalid patents can be challenged in the courts. This

Court has held that there is a public interest in making sure

that those with the greatest interest to challenge invalid patents

are free to do so. Lear, Inc. v. Adkins, 395 U.S. 653, 670

(1969). Other courts have recognized that unfair roadblocks

should not be placed in the path of the challenge of potentially

invalid patents. As stated in Georgia-Pacific Corp. v. United

14 See, Topliff v. Topliff, 145 U.S. 156 (1892); Clark v. Wooster, 119

U.S. 322 (1886); Seymour v. McCormick, 57 U.S. (16 How.) 480

(1854). While this Court considered 35 U.S.C. § 284 in General Motors

Corp. v. Devex Corp., 461 U.S. 648 (1983), on the question of

prejudgment interest, it specifically noted at p. 651, n. 3, that the

question of punitive damages was not presented in that case.

States Plywood Corp., 243 F.Supp. 500, 539 n.38 (S.D.N.Y.

1965):

Thus, overemphasis of the deterrent function of damages

could well lead to a stultification of the only expedient

method of testing the validity of a patent.

The doctrine of punitive damages, as applied by the Federal

Circuit, is just such a roadblock. If left unchecked, it will have

a chilling effect on companies’ efforts to design around valid

patents as well as on companies’ ability to mount challenges to

invalid patents.

The Federal Circuit has held that to avoid punitive damages

a party has an affirmative duty to obtain advice of counsel

before undertaking any activities which might constitute in-

fringement of a patent of which it has knowledge. Underwater

Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed.

Cir. 1983). Thus, if a party proceeds with the manufacture and

sale of a product, either without advice of counsel or with

advice obtained after being charged with infringement, it is

very likely that the Federal Circuit will hold that party subject

to treble damages notwithstanding that the validity and in-

fringement issues were litigated in goo.’ faith. The Federal

Circuit has also attempted to set standards for the quality of

the legal advice rendered. /d.; Central Soya Co. v. Geo. A.

Hormel & Co., 723 F.2d 1573 (Fed. Cir. 1983) (Nichols concur-

ring). Also, see generally, Ghloz, Willful Infringement And

“Magic Words”—The Effect Of Opinions Of Counsel On

Awards Of Increased Damages And Attorney Fees, 66

J.Pat.Off. Soc’y. 598 (1984).

The Federal Circuit has also enlarged the framework of

activities which will be deemed to constitute willful infringe-

ment. Witness this case, where the finding of willful infringe-

ment is based solely on a circumstantial evidence theory

borrowed from the copyzight law.

There was no proof that Dura acted in bad faith. In fact, in

denying TWM’s application for attorneys fees, the District

Court specifically found that there was no bad faith to support

such an award. Nevertheless, the District Court found, and the

Federal Circuit affirmed, that the copyright theory of “access

plus similarity” was sufficient to support the award of more

than $17,000,000 in punitive damages. Neither court below

explained why the same conduct of Dura which was insuffi-

cient to support the award of $300,000 in requested attorneys

fees, was sufficient to support the award of more than

$17,000,000 in punitive damages. It is the propensity of the

Federal Circuit to punish patent infringers which permits such

anomalies.

It is respectfully submitted that as a matter of policy,

punitive darnages in patent cases should be reserved for those

situations where there is objective evidence of bad faith, and

such damages should not be awarded based merely on circum-

stantial evidence or the timing of attorneys’ opinions. When

good faith defenses are raised as to the validity or infringement

of a patent, and are fairly litigated, punitive damages should

not be awarded. This Court should grant certiorari in order to

clarify the standards for the awarding of punitive damages in

patent cases.

Conclusion

For the reasons stated above, this Court should grant cer-

tiorari to review the judgment of the United States Court of

Appeals for the Federal Circuit.

Respectfully submitted,

Arthur D. Gray ay

KENYON & KENYON

One Broadway

Of Counsel: New York, New York 10004

Francis T. Carr (212) 425-7200

Philip G. Hampton, II Counsel for Petitioner

APPENDIX

Ons} =F

Opinion Below of the United States Court of Appeals

for the Federal Circuit

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

Appeal Nos. 85-2153, 85-2237 and 85-2273*

TWM MANUFACTURING CO., INC.,

Appellee/Cross-Appellants,

—_—V.—

DURA CORP. AND KIDDE, INC.,

Appellants/Cross-A ppellees.

DECIDED: April 25, 1986

—-

Before MARKEY, Chief Judge, NICHOLS, Senior Circuit Judge,

and SMITH, Circuit Judge.

a os

= This court consolidated the appeals on May 20, 1985. In Appeal No.

85-2237, TWM challenged the district court’s acceptance of papers on file as

a formal Notice of Appeal. In Appeal No. 85-2273, Dura challenged the

district court’s refusal to accept a formal Notice of Appeal filed out of time.

TWM moved to dismiss this appeal No. 85-2153 for untimely filing of a

Notice of Appeal. This court denied that motion in an order dated August

13, 1985. The issues raised in Appeal Nos. 85-2237 and 85-2273 having been

necessarily disposed of in the court’s dismissal of that motion, Appeal Nos.

85-2237 and 85-2273 are dismissed as moot.

MARKEY, Circuit Judge.

Dura Corp. and Kidde, Inc. (Dura) appeal from a judgment

of the United States District Court for the Eastern District of

Michigan, adopting a report of a special master awarding

TWM Manufacturing Co., Inc. (TWM) $31,288,496 in dam-

ages for patent infringement. We affirm.

Background

U.S. Patent No. 3,285,621 (‘621 patent) issued on November

15, 1966 to Stephen Turner, Jr. The patented device is a

“Wheeled Vehicle Suspension” enabling trucks to engage an

additional axle and wheels to carry heavy loads. Turner as-

signed the patent to TWM on August 28, 1969.

On December 19, 1966, Turner charged Dura with infringing

the ‘621 patent and tendered Dura a license. During negotia-

tions, Dura said it believed the patent invalid. Negotiations

ended on April 24, 1967. Dura did not hear from Turner again

until his assignee, TWM, sued Dura on February 22, 1973.

Prior Proceedings

The district court granted Dura’s motion for summary

judgment, holding TWM’s claim barred by laches and estop-

pel. 189 USPQ 274 (E.D. Mich. 1975). On appeal, the Sixth

Circuit reversed and remanded, holding that a genuine issue of

material fact existed on whether Dura had engaged in egregi-

ous conduct that might undermine its laches and estoppel

defenses. 592 F.2d 346, 201 USPQ 433 (6th Cir. 1979). TWM

had alleged that Dura “plagiarized” the claimed invention and

harassed TWM by initiating or sponsoring third party litiga-

tion challenging the patent.

On remand, the district court found that: (1) Dura’s behav-

ior was sO egregious as to defeat the laches defense; (2) the

absence of affirmative misconduct by TWM defeated the

estoppel defense; (3) Dura had willfully infringed, and (4)

Dura’s “copying” was not such bad faith as to warrant

attorney fees. The court upheld the patent. 213 USPQ 423

(E.D. Mich. 1981).

The district court entered judgment: reserving decision on

enhanced damages; granting an immediate injunction against

infringement; and ordering an immediate accounting. The

accounting, but not the injunction, was stayed pending Dura’s

appeal to the Sixth Circuit Court of Appeals. While that

appeal was pending, the district court found Dura in criminai

contempt of the injunction because it sold repair parts for its

infringing suspensions. Dura appealed that finding to the Sixth

Circuit Court of Appeals.

The Sixth Circuit Court of Appeals: affirmed the rejection

of the laches and estoppel defenses and the upholding of the

patent; held that Dura had violated the injunction, but was not

guilty of criminal contempt; and remanded for determination

of damages. 722 F.2d 1261, 221 USPQ 25 (6th Cir. 1983).

The speciai master held an evidentiary hearing on damages

and rendered her report. The district court orally adopted that

report in toto as not ciearly erroneous. See Fed. R. Civ. P.

53(e)(2).

The Special Master’s Report

The special master calculated compensatory damages as

$8,511,596, the sum of: (1) a 30% royalty, and lost profits for

the years proven ($6,465,714); (2) $100 for each sale made by

TWM at prices forced lower by the infringement ($1,577,200);

(3) special discounts by TWM on some sales to compete with

Dura’s pricing practices ($468,682); and (4) $100 for each sale

by Dura in TWM’s lost profit years, because TWM would have

made those sales at a $100 higher price ($366,900). The special

master trebled the damages and added prejudgment interest,

arriving at the ultimate figure of $31,288,496.

In this appeal, Dura does not contest the award of interest,

but contests each calculation of damages by the special master

as “grossly excessive.”

Issue

Whether the damages judgment appealed from rested on an

abuse of discretion.

OPINION

Standard of Review

The methodology of assessing and computing damages un-

der 35 U.S.C. § 284 is within the sound discretion of the

district court. Yarway Corp. v. Eur-Control USA, Inc., 775

F.2d 268, 275, 227 USPQ 352, 357 (Fed. Cir. 1985); King

Instrument Corp. v. Otari Corp., 767 F.2d 853, 863, 226 USPQ

402, 409 (Fed. Cir. 1985), cert. denied, 54 USLW 3556 (1986).

Dura, as appellant, has the burden of convincing this court

that the district court abused its discretion. Seattle Box Co. v.

Industrial Crating and Packing, Inc., 756 F.2d 1574, 1581, 225

USPQ 357, 363 (Fed. Cir. 1985); Paper Converting Machine

Co. v. Magna-Graphics Corp., 745 F.2d 11, 21, 223 USPQ

591, 598 (Fed. Cir. 1984). “Abuse of discretion may be es-

tablished by showing that the district court either made an

error of law, or a clear error of judgment, or made findings

which were clearly erroneous.” Seattle Box Co., 756 F.2d at

1581, 225 USPQ at 363; see also American Original Corp. v.

Jenkins Food Corp., 774 F.2d 459, 462-64, 227 USPQ 229,

300-02 (Fed. Cir. 1985).

Reasonable Royalty

35 U.S.C. § 284 governs the award of damages for patent

infringement. It provides:

Upon finding for the claimant the court shall award the

claimant damages adequate to compensate for the in-

fringement, but in no event less than a reasonable royalty

for the use made of the invention by the infringer,

together with interest and costs as fixed by the court.

* * ” ~

The court may receive expert testimony as an aid to the

determination of damages or of what royalty would be

reasonable under the circumstances.

For the years TWM could not establish its lost profits, TWM

and Dura agreed that the district court should determine a

reasonable royalty based on a “hypothetical royalty resulting

from arm’s length negotiations between a willing licensor and a

willing licensee.” Hanson v. Alpine Valley Ski Area, Inc., 718

F.2d 1075, 1078, 219 USPQ 679, 682 (Fed. Cir. 1983); see

Tektronix, Inc. v. United States, 552 F.2d 343, 348-49, 193

USPQ 385, 390-392 (Ct. Cl. 1977), cert. denied, 439 U.S. 1048

(1978); Georgia-Pacific Corp. v. U. S. Plywood Corp., 318 F.

Supp. 1116, 1120-22, 166 USPQ 235, 238-39 (S.D.N.Y. 1970),

modified, 446 F.2d 295, 170 USPQ 369 (2d Cir.), cert. denied,

404 U.S. 870 (1971). The parties recognize that no established

royalty exists in this case.

The special master, citing Georgia-Pacific and Tektronix,

used the so-called “analytical approach”, in which she sub-

tracted the infringer’s usual or acceptable net profit from its

anticipated net profit realized from sales of infringing devices.

Relying principally on a memorandum written by “Dura’s

top management” before the initial infringement, the special

master found that Dura projected a gross profit averaging

52.7% from its infringing sales. From that figure, she sub-

tracted overhead expenses to get an anticipated net profit in the

range of 37% to 42%. Subtracting the industry standard net

profit of 6.56% to 12.5% from that anticipated net profit

range, she arrived at a 30% reasonable royalty.

Dura says the special master erred as a matter of law in

failing to analyze all factors delineated in Georgia-Pacific. Had

she done so, says Dura, she would have found the “analytical

approach” inapplicable. Unlike the situation in Georgia-Paci-

fic, Dura argues, Turner had an unproven product he was

desperate to license to a company like Dura with marketing

and manufacturing expertise, and there was a market leader

with an established non-infringing product. Dura contends that

it was error for the special master to rely on Dura’s estimate of

future profit in a purely speculative memorandum. Having

reevaluated the Georgia-Pacific factors, Dura strenuously ar-

gues that the 30% royalty was “exorbitant” and “totally at

odds with the result indicated by the other factors.”

Dura has cited nothing which would limit the district court’s

discretion in choosing the analytical approach to determine a

reasonable royalty. Section 284 does not mandate how the

district court must compute that figure, only that the figure

compensate for the infringement. Aro Manufacturing Co. v.

Convertible Top Replacement Co., 377 U.S. 476, 507, 141

USPQ 681, 694 (1964).

In arguing against the district court’s application of the

analytical approach, Dura deals mostly with events subsequent

to its initial infringement. Although evidence of actual profits

is generally admissable, 7rans-World Manufacturing Corp. v.

Al Nyman & Sons, inc., 750 F.2d 1552, 1568, 224 USPQ 259,

269 (Fed. Cir. 1984), the district court here correctly focused

on the date when the infringement began. Hanson, 718 F.2d at

1079, 219 USPQ at 682; Panduit Corp. v. Stahlin Bros. Fibre

Works, Inc., 575 F. 2d 1152, 1158, 197 USPQ 726, 731 (6th Cir.

1978).

On appeal, an infringer cannot successfully argue that the

district court abused its discretion in awarding a “high” royalty

by simply substituting its own recomputation to arrive at a

lower figure. See Paper Converting Machine Co., 745 F.2d at

21, 223 USPQ at 598-99. That argument does not show error,

but merely indicates the damages an infringer-appellant would

prefer to pay. That the district court might have viewed the

infringer’s evidence more favorably is not a basis for reversal.

See American Original Corp., 774 F.2d at 462-64, 227 USPQ at

300-02.

Whether Dura’s computation was more accurate than that

proffered by TWM’s experts was for the special master to

decide. Dura’s pointing to facts that might have supported a

lower royalty does not sustain its burden of showing that the

district court abused its discretion in adopting the facts found

by the special master. Nor does it establish that the master’s

findings were clearly erroneous. Dura’s oversimplified argu-

ment that the special master considered only one Georgia-Paci-

fic factor will not withstand analysis in light of the master’s

extensive report.

The special master gave weight to the testimony of TWM’s

witnesses, who said their computations were derived from the

factors in Georgia-Pacific. On the other hand, Dura offered no

testimony from any of its present or former employees who

were familiar with Dura or TWM. Dura has given no basis for

this court to take the highly unusual step of rejecting credibility

determinations of the special master.

Moreover, Dura disregards the effect of the special master’s

specific rejection of many of the “facts” Dura urges on appeal.

For example, Dura insists that there existed non-infringing

alternatives. However, the special master found that the a@b-

sence of such alternatives was indicated by Dura’s: (1) failure

to design its own device, despite the alleged availability of

other suspensions now characterized by Dura as “acceptable”;

(2) election to infringe, despite having expended only minimal

sums when notified of infringement; (3) willful infringement;

(4) failure to successfully market other allegedly “acceptable”

designs; (5) violation of the 1981 injunction, and (6) with-

drawal from the business after enforcement of the injunction.

The special master’s notation that the Turner invention’s

immediate commercial success, its satisfaction of a long-felt

need, and the absence of a competing suspension possessing all

its beneficial characteristics, were factors tending to support a

30% royalty, is supported in the record.

The special master properly rejected Dura’s effort to down-

play the significance of its pre-infringement internal memoran-

dum, because it was more probative than profits realized

shortly after the infringement, because Dura’s loss of its

documents precluded TWM from showing lost profits, and

because Dura used the figures in the memorandum in deciding

whether to manufacture and market the infringing device.

On appeal, this court may not exercise de novo review over

the special master’s finding on Dura’s anticipated profit. That

rule is unaffected by the basis for that finding, i.e., by whether

it is based on testimony or on physical or documentary evi-

dence. Anderson v. City of Bessemer, N.C., U.S. :

105 S.Ct. 1504, 1512 (1985). The special master thoroughly

considered and weighed the Dura memorandum, and this court

may not reweigh it. “Determining the weight and credibility of

the evidence is the special province of the trier of fact.”

Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S.

844, 856, 214 USPQ 1, 7 (1982).

The special master properly resolved difficulty in determin-

ing the royalty figure against Dura as an infringer which had

lost its records. Gyromat Corp. v. Champion Spark Plug Co..,

735 F.2d 549, 554-55, 222 USPQ 4, 8 (Fed. Cir. 1984). She

recognized that “any adverse consequences must rest on the

infringer when the inability to ascertain lost profits is due to

the infringer’s own failure to keep accurate or complete rec-

ords.” Lam, Inc. v. Johns-Manville Corp., 7\8 F.2d 1056,

1065, 219 USPQ 670, 675 (Fed. Cir. 1983).

Dura has not persuaded this court that a 30% royalty does

not reflect what a willing licensor and licensee would have

agreed to in 1967, based on the present record. That Turner

might have agreed to a lesser royalty is of littie relevance, for

to look only at the question would be to pretend that the

infringement never happened. “It would also make an election

to infringe a handy means for competitors to impose a ‘com-

pulsory license’ policy upon every patent owner.” Panduit

Corp., 575 F.2d at 1158, 197 USPQ at 731. The willing

licensee/licensor approach must be flexibly applied as a

“device in the aid of justice.” Cincinnati Car Co. v. New York

Rapid Transit Corp. , 66 F.2d 592, 595, 19 USPQ 40, 43 (2d Cir.

1933).

Entire Market Value Rule

Dura argues that the special master erroneously included

unpatented wheels and axles in the royalty base and in the lost

profits award. Dura contests the applicability of the “entire

market value” rule here because TWM did not manufacture

the unpatented parts, but merely provided them as a “conven-

ience to its customers.”

We reject Dura’s argument that the inclusion of unpatented

items in the royalty base or lost profits determination is

dependent on who manufactures those items, or on whether

they are supplied for “convenience”.

The entire market value rule allows for the recovery of

damages based on the value of an entire apparatus containing

several features, when the feature patented constitutes the basis

for customer demand. See, e.g., King Instrument Corp. v.

Otari Corp., 767 F.2d 853, 865, 226 USPQ 402, 410-11 (Fed.

Cir. 1985), cert. denied, 106 S. Ct. 1197 (1986); Paper Convert-

ing Machine Co., 745 F.2d at 22, 223 USPQ at 599 (Fed. Cir.

1984). It is the “ ‘financial and marketing dependence on the

patented item under standard marketing procedures’ which

determines whether the non-patented features of a machine

should be included in calculating compensation for infringe-

ment.” Kori Corp. v. Wilco Marsh Buggies and Draglines,

Inc., 761 F.2d 649, 656, 225 USPQ 985, 989 (Fed. Cir.), cert.

denied, 106 S. Ct. 230 (1985) (quoting Leesona Corp. v. United

States, 599 F.2d 958, 974, 202 USPQ 424, 439 (Ct. Cl.), cert.

denied, 444 U.S. 991 (1979)). In establishing lost profits, “[t]he

deciding factor. . . is whether ‘[nJormally the patentee (or its

licensee) can anticipate sale of such unpatented components as

well as of the patented’ ones.” Paper Converting Machine Co.,

745 F.2d at 23, 223 USPQ at 599 (quoting Tektronix, 552 F.2d

at 351, 193 USPQ at 393).

Where a hypothetical licensee would have anticipated an

increase in sales of collateral unpatented items because of the

patented device, the patentee should be compensated accord-

ingly. Cf. Trans-World Manufacturing Co., 750 F.2d at 1568,

224 USPQ at 269-70 (increased sales of unpatented items may

be relevant in determining reasonable royalty). That correla-

tion was shown to exist in this case. Because Dura did not

show how many, if any, of the patented devices were sold alone

without wheels and axles, the special master could not have

apportioned the infringing sales if such apportioning had been

appropriate. The special master correctly included unpatented

items in the royalty base.

Having shown each of the elements for lost profits, TWM

established that in all reasonable probability it would have

made the sales that Dura made. The special master therefore

correctly included the unpatented wheels and axles in her lost

profits determination.

10a

Lost Profits

Dura says TWM should get no lost profits because it did not

establish absence of acceptable non-infringing substitutes,

which, says Dura, need not possess all the beneficial charac-

teristics of the patented device. Alternatively, Dura says the

concession of a TWM witness (that competition existed in 30%

of the market) means there must have been non-infringing

substitutes in at least that portion of the market.

Dura’s arguments are without merit. As above indicated, the

special master found many facts clearly establishing absence of

acceptable substitutes. Dura has failed to show that any of the

many findings on which the magistrate’s non-substitutes deter-

mination was based was clearly erroneous.

Mere existence of a competing device does not make that

device an acceptable substitute. The special master committed

no error in noting that none of the alleged substitutes had all

beneficial characteristics of the patented device. See Central

Soya Co. v. Geo. A. Hormel & Co., 723 F.2d 1573, 1579, 220

USPQ 490, 494 (Fed. Cir. 1983). That finding supported the

determination that there were no acceptable substitutes. “A

product lacking the advantages of that patented can hardly be

termed a substitute ‘acceptable’ to the customer who wants

those advantages.” Panduit Corp., 575 F.2d at 1162, 197

USPQ at 734. Moreover, Dura ignored those substitutes while

it sold the patented invention and thus its acceptable substitute

argument “must be viewed of limited influence.” /d. at 1162

n.9, 197 USPQ at 734 n.9.

Dura has shown no error in the special master’s determina-

tion that TWM is entitled to lost profits for the years its lost

profits exceeded its reasonable royalty.

Diminished Sales Prices and Special Discounts

Dura argues that the special master should not have awarded

TWM $100 for each TWM sale and Dura saie in the lost profit

years 1976-1979 because that award was based on testimony

which is “totally fallacious and contrary to other evidence in

the case.” Dura argues tha‘ nothing in the record supports the

lla

finding that TWM could have sold its patented product for

$100 more had Dura not infringed.

The special master credited the testimony of TWM’s wit-

nesses, Messrs. Wilkof and Van Denberg, who testified that

Dura’s infringement caused TWM to keep its prices down $100

on the average. Dura presented no rebuttal witnesses to that

testimony. When no contrary evidence exists in the record, bald

assertions that the testimony is self serving and defies common

sense cannot form a “basis on which this court could engage in

the normally inappropriate process of substituting a contrary

credibility determination for that of the district court.” Wind-

surfing International, Inc. v. AMF Inc., 782 F.2d 995, 999, 228

USPQ 562, 565 (Fed. Cir. 1986).

In addition to the $100 price reduction, substantial evidence

supports the special master’s finding that TWM had to give

special discounts to compete with Dura’s pricing practices.

Dura’s argument that there was no correlation between the

special discounts and its infringing activity is contrary to the

record and must be rejected.

in determining an award “adequate to compensate”, 35 USC

§ 284, there must be room to take into account the totality of

the circumstances. The sale price and discount elements em-

ployed here may be unusual. Their employment under the

circumstances of this case, however, did not constitute an

abuse of discretion.

Because Dura has shown no evidence contradicting the

special master’s findings concerning the $100 on each TWM

sale, $100 on each Dura sale, and TWM’s special discounts,

those awards must be affirmed.

Enhanced Damages

Dura concedes that the district court’s finding of willfull

infringement is the law of the case. Dura contends, however,

that absence of a finding of its “bad faith” precludes an award

of enchanced damages for the willful infringement.

This court reviews an award of enhanced damages under an

abuse of discretion standard, See, e.g., Rosemont, Inc. v.

12a

Beckman Instruments, Inc., 727 F.2d 1540, 1547-48, 221 USPQ

1, 8-9 (Fed. Cir. 1984), and has repreatedly affirmed enhanced

awards based on findings of willfull infringement. See cases

cited in S.C. Johnson & Son, Inc. v. Carter-Wallace, Inc., 781

F.2d 198, 200, 228 USPQ 367, 368 (Fed. Cir. 1986). Dura cites

no law requiring a finding of “bad faith” before awarding

increased damages for willful infringement. Nor has Dura

shown an abuse of discretion in the district court’s response to

Dura’s “bad faith” arguments after the remand. The treble

damage award must be affirmed.

Conclusion

The judgment appealed from is affirmed in all respects.

AFFIRMED

13a

Opinion of the United States District Court for the

Eastern District of Michigan Dismissing the Complaint

Because of Laches and Estoppel

DISTRICT COURT

E. D. MICHIGAN, S. Div.

No. 4-72852

Decided December 3, 1975

TWM MANUFACTURING COMPANY, INC., et al.

—_—V—

DURA CORPORATION

aoe

KAESS, Chief Judge,

This matter comes before the Court on the motion of the

defendant, Dura Corporation (Dura), for summary judgment

dismissing plaintiffs’ complaint for infringement of Turner

U.S. Patent 3,285,621, on the basis of laches and estoppel.

Defendant contends that plaintiffs’ unreasonable and inexcus-

able delay in commencing suit after notice of infringement had

been given resulted in prejudice to the defendant and that

under the equitable doctrines indicated above, recovery should

be barred.

As in any motion of this type, the underlying facts and

circumstances are extremely important to any analysis and

determination of the issues presented. The Court has earlier, in

an opinion and order denying defendant’s motion for sum-

mary judgment, described the physical characteristics and

functions of the Turner Patent. That process need not be

repeated for purposes of the current motion. However, a brief

chronology of relevant dates with respect to the relations

between the parties is necessary and is as follows:

DATE

January 12, 1965

March 12, 1965

November 15, 1966

December 5, 1966

December 19, 1966

January 9, 1967

January 25, 1967

February 21, 1967

March 3, 1967

March 16, 1967

March 31, 1967

l4a

EVENT

Turner patent application, Serial No. 424,933

filed in the U.S. Patent Office by Williams and

Kreske, attorneys for Turner.

Copy of the Turner patent application sent by

Turner attorney Michael Williams to Dura Cor-

poration.

Turner patent issued as No. 3,285,621.

Dura Corporation advertises for sale in ‘‘Trans-

port Topics’’ the 1400 series suspension, the

accused device in this action.

Turner attorney Kreske writes to Dura Corpora-

tion under certified No. 900474 notifying Dura

that ‘‘sale or use of such device appears to come

within the scope of patent 3,285,621.’’

Soft copy of the Turner patent received by Dura

Corporation, and notice of infringement ac-

knowledged by attorney M.K. Murphy, patent

counsel for Dura Corporation.

The late Max Murphy, attorney writes memo-

randum to Dura Management recommending

accumulation of a reserve against possible liabil-

ity in connection with the Turner and Kulyk

patents.

Turner attorney Kreske reminds the late Max

Murphy that no further response has been re-

ceived.

The late Max Murphy acknowledges February

21 letter from Attorney Kreske.

The late Max Murphy advised Attorney Kreske

that the Turner patent appears to be invalid.

The late Max Murphy writes to Dura Manage-

ment that if Turner’s attorney does not reply

within 60 to 90 days, then Dura should recon-

sider the matter ‘‘with a view to eliminating the

royalty reserve.’’

Turner’s Attorney Kreske writes to the late Max

Murphy and disagrees with the effect of the

prior uses referred to by Murphy. Kreske states:

15a

DATE EVENT

“*It may be that I misinterpret prior use to which

you refer and if so, I can correct it. In any

event, your comments are awaited since my

client is pressing me to dispose of this matter.’’

(Emphasis added)

April 5, 1967 The late Max Murphy writes to Attorney Kreske

reaffirming his opinion of invalidity.

April 24, 1967 Turner Attorney Kreske has final contact with

the late Max Murphy by telephone.

1968 Dura Attorney Max Murphy dies.

May 6, i970 An action styled Giurato v. Turner is filed by

Anthony Giurato in Mahoning County Court of

Common Pleas, No. 190635, alleging that

Stephen Turner, Jr., was not the first and origi-

nal inventor of the subject matter claimed in the

Turner U.S. patent 3,285,621, but rather Turner

had derived the idea from Giurato.

January 6, 1972 Giurato v. Turner suit settled by mutual release

and agreed judgment and payment of $7,500

from Turner to Giurato.

February 22, 1973 TWM Manufacturing Company files complaint

in the present action in the Eastern District of

Kentucky.

Plaintiff does not dispute the dates or the references made to

contacts between the plaintiff and the defendant. Rather, as

will be discussed infra, plaintiff disputes the relevance of the

dates and the interpretations given to certain documents as

they relate to laches and estoppel.

The doctrine of laches, perhaps peculiar to patent litigation,

has been defined succinctly in a recent decision of the Sixth

Circuit Court of Appeals. As the Court noted in American

Home Products Corp. v. Lockwood Mfg. Co., 483 F.2d 1120,

1122, 179 USPQ 196, 197 (6th Cir.), cert. denied 414 U.S.

1158, 180 USPQ 417 (1974):

**Generally, laches requires that there be, in the light of

all the existing circumstances, an unreasonable delay re-

sulting in prejudice to the other party. Sobos!le v. United

States Steel Corp., 359 F.2d 7, 12 (3rd Cir. 1966).’’

l6a

See also Siemens Aktiengesellschaft v. Beitone Electronics

Corp., 381 F.Supp. 57, 60, 184 USPQ 433, 435 (1974).

The examination of laches in the instant case must then be a

bifuracted one. Being continually cognizant of the surrounding

circumstances, the Court must first determine whether or not

there was an unreasonabie delay, and if so, whether the delay

resulted in prejudice to the defendant. Answering each in the

affirmative, the Court must then examine the situation as it

relates to the defense of estoppel.

Delay

A review of the above chronicled events indicates that the

patent of the plaintiffs issued November 15, 1966. Shortiy

thereafter, on December 5, 1966, an advertisement for the

alleged infringing device appeared in an edition of ‘‘Transport

Topics.’’ Approximately two weeks later, counsel for Turner

advised Dura, with reference to the advertisement, that:

““* * * the manufacture, sale, or use of such device

appears to come within the scope of patent 3,285,621. On

behalf of the owner of this patent, I have been instructed

to advise that consideration will be given to all reasonable

offers to purchase this patent or to a license thereunder.”’

Defendent refers to this communication as a formal notice of

infringement, while plaintiff contends that it is no more than

an offer to purchase or license. In support of its contention,

plaintiff submits two other correspondences with other in-

fringers, which it asserts are notices of infringement.' A review

I 1 February 1967

CC: Turner

A & A Welding

Mingo Junction

Ohio 43938

Gentlemen:

It has come to the attention of my client that you may be interested

in the manufacture and/or sale of auxiliary, lift axle suspensions of the

type covered in United States Patnt No. 3,285,621.

oN es tr lan A?

17a

of these two letters, as well as an analysis of the letter sent to

Dura, satisfies this Court that the letter of December 19, 1966,

is indeed a notice of infringement. That communication not

only solicits a purchase or possible licensing under the patent

but also asserts that the product manufactured by the defen-

dant infringes on the patent of Turner. Subsequent communi-

cations disclose that Dura ultimately rejected the validity of the

Turner Patent and, on that basis, advised counsel for Turner

that they ‘‘would not be interested in purchasing this patent or

taking a license under it.’’ This decision was made despite the

Against the possibility that the foregoing is correct, I enclose a print

of the patent and advise that the owner of such patent will give

consideration to a license arrangement permitting manufacture and

sale of such suspensions.

Your early reply will be appreciated.

Very truly yours

Gerald H. Kreske

GHK/el

Encl

Certified Mail

No. 900414 - RRR

1 February 1967

CC: Turner

Burnham Trailer Service

Hanoverton, Ohio 44423

Gentlemen:

I am advised that your company is installing auxiliary, lift axle

suspensions that fall within the scope of United States Letters Patent

3,285,621, print of which is enclosed.

The owner of this patent intends to enforce his right to prevent

unauthorized manufacture, use, or sale, of devices falling within the

scope thereof.

If you wish to continue installation of these auxiliary axle suspen-

sions, consideration will be given to a license arrangement permitting

manufacture and sale of such suspensions.

Your early reply is solicited.

Very truly yours

Gerald H. Kreske

GHK/encl

Certified Mail

No. 900413 - RRR

18a

fact that Dura had been informed by counsel for Turner that

‘‘my client is pressing me to dispose of this matter.’’ Com-

munications between the two apparently terminated sometime

in April, 1967.

Thus, there is a period of approximately six years and two

months between the initial notice of infringement to Dura and

the commencement of this lawsuit on February 22, 1973. The

interval between the break-off of negotiations and the lawsuit

is approximately five years and ten months. The Court is aware

of no precedent which declares at what point a delay becomes

an unreasonable one. Rather, it appears that each situation

must be evaluated individually on the facts and circumstances

as they exist. Siemens, supra, at 60, 184 USPQ at 435; Baker

Manufacturing Co. v. Whitewater Manufacturing Co., 430

F.2d 1008, 1011, 166 USPQ 463, 464-465 (7th cir. 1970),

quoting, Westco-Chippewa Pump Co. v. Delaware Electric &

Supply Co., 64 F.2d 185, 187, 17 USPQ 145, 147 (3d Cir.

1933); American Home Products Corp. v. Lockwood Mfg.

Co., 173 USPQ 486, 497 (S.D. Chio 1972).

In defense of the delay in this case, plaintiff offers two

situations which can generally be described as falling under the

heading of “other litigation.” The first relates to attempts by

the patentee to enforce the patent against two alleged in-

fringers who were producing locally. Reference has previously

been made to letters sent to these parties. Negotiations lasted

into 1967 and were settled prior to Court action. the second

defense deals with litigation attacking the sole inventorship by

Turner of the patent in question. This suit was initiated by one

Anthony Giurato in Common Pleas Court in Ohio in May,

1970, and resolved December 21, 1971, by a settlement with the

plaintiff. The judgment, entered and docketed on January 6,

1972, held that Turner was the sole inventor of U.S. Patent

3,285,621.

The Court in American Home Products, supra, had occa-

sion to deal at some length with the defense of ‘‘other litiga-

tion.’’ There, the Court noted:

‘‘Ekco, however relies upon the generally accepted princi-

ple that delay in suing an infringer is not legal delay in a

19a

laches sense when the party asserting the patent is engaged

in other litigation against other infringers. U.S. Mitis Co.

v. Detroit Steel & Spring Co., 122 F. 863, 866 (6th Cir.

1903); Jenn-Air Corp. v. Penn Ventilator Co., 464 F.2d

48, 50, 174 USPQ 419, 420-421 (3rd Cir. 1972). This

exception takes into account the fact that patent litigation

is often unusually complex, lengthy and expensive. It is an

equitable doctrine, and must be considered as one factor

which would, in appropriate circumstances, negate a de-

fense of laches. Therefore, we must assess the various

factors which might tend to negate a claim of unreason-

able delay and must consider all of the factors which

contributed to this admittedly unique situation.

* * *

‘*Although the ‘other litigation’ exception does permit a

patent owner to sue multiple infringers consecutively, we

are unable to find any authority for the proposition that

the existence of ‘other litigation’ is a complete bar to the

assertion of a laches defense. Although multiple litigation

need not be maintained against multiple infringers, we see

no reason why a patent owner need not at least assert to

the other infringers its intention to bring a subsequent

action at the termination of the presently pending ac-

tion.’’ American Home Products, 483 F.2d 1120, at

1122-1123, 179 USPQ at 197-198.

Thus, in this Circuit at least, other litigation is only one of

many factors to be considered.

For several reasons, the Court does not view those negotia-

tions with alleged infringers as an excuse to the delay in

bringing this action. First, the negotiations terminated in 1967,

at least five full years before this action was commenced.

Second, the negotiations never approached the status of litiga-

tion, or the complexity, length or expense inherent therein.

Plaintiff’s second defense, litigation involving an attack on

the inventor’s title, presents a somewhat analogous yet distin-

guishable situation from that usually encountered. Generally,

20a

where other litigation is used as a defense to laches and

estoppel, it refers to other infringement litigation in which the

plaintiff is involved. Plaintiff here asserts that the intervening

litigation, which required a resolution as to his title and

ownership of the patent, operates as an absolute excuse for the

delay. Plaintiff cites several cases which allegedly support this

proposition. A review of those cases reveals that none declare

such litigation to be an absolute defense and that each is

distinguishable on its facts from the case at bar. In Maloney, v.

Rocky Mountain Natural Gas, 494 F.2d 401, 181 USPQ 617

(10th Cir. 1974), the plaintiff’s assignor had not received title

to the patents until just three years prior to the bringing of the

action. Up to that point, title had been in the hands of another

and subject to dispute. In the present case, plaintiff has always

had title despite the Giurato challenge. Huntman Stabilizer

Corp. v. Generai Motors, 53 F.Supp. 43, 59 USPQ 220

(D.C.N.J. 1943), involved a patent interference action in the

Patent Office which delayed the issuance of the patents and

which had been backed by the defendant in the infringement

action. The delay in Taylor Engines, Inc. v. All Steel Engines,

Inc. 192 F.2d 171, 92 USPQ 35 (9th Cir. 1951), was the result

of a State Court action challenging title brought by the defen-

dants in the infringement action. The defendant here was not a

party to the state action against Turner. Berry v. Bohn

Aluminum and Brass Co., 43 USPQ 133 (E.D. Mich. 1939),

involved a delay due to a priority dispute which ultimately

went to the Sixth Circuit Court of Appeals. There, however,

plaintiff commenced suit against the defendant prior to the

final resolution of the interference action. Here, the plaintiff

waited in excess of one year after the termination of the

litigation to initiate suit against Dura. Skinner v. Dow Chemi-

cal Co., Inc., 85 USPQ 191 (E.D. Mich. 1950), again involved

a situation where the plaintiff did not have title until shortly

before bringing suit and where plaintiff’s assignor refused to

bring suit against the infringers. Finally, plaintiff’s reliance on

Jones v. Ceramco, 184 USPQ 75 (D.C. N.Y. 1974), appears

misplaced inasmuch as the decision of the Court refusing to

dismiss the infringement action on the basis of laches and

2la

wsiuppel was reversed on reconsideration ‘vy the Court. Jones

v. Ceramco, 387 F.Supp. 940, 184 USPQ 591.

The Court in Siemens, supra, was confronted with a situa-

tion much the same as that presented in the case at bar. There

in defense of a similar motion, the plaintiff asserted excuse

resulting from other patent infringement litigation, inventor-

ship litigation, and the unsettled status of its German patent

application. The length of the delay, from the time Siemens

first learned of defendant's accused product until action was

brought, was seven years. Considering the length of the delay

and the verified excuses offered by the plaintiff, the Court

nonetheless concluded that ‘‘piaintiff’s dereliction was both

unreasonable and inexcusable and has not been adequately

explained.’’ This Court is obliged to reach the same conclusion

on the facts before it here. Plaintiff offers no excuse for the

three-year hiatus prior to the inventorship litigation or for the

fourteen months after the resolution of that dispute. At the

very least, the plaintiff could have notified the defendant of

the possibility of future litigation pending the outcome of the

other suit. See: Advanced Hydraulics, Inc. v. Otis Elevator

Co., 186 USPQ 1, 4 (7th Cir. 1975); Baker, supra, at 1015, 166

USPQ at 468; Siemens, supra, at 61, 184 USPQ at 435-436;

American Home, supra, at 1123, 179 USPQ at 197-198; Min-

nesota Mining & Mfg. Co. v. Berwick Industries, Inc. 373

F.Supp. 851, 867-868, 182 USPQ 1i1l, 121-123 (M.D. Pa.

1974).

Plaintiff also contends that the time of the delay here

involved is less than six years, inasmuch as there could be no

infringement of the Turner Patent until the Dura device was

installed on a truck. Apparently, counsel for plaintiff would

now reverse his earlier position with respect to what parts

make-up the combination which is the Turner Patent. Pre-

viously, it was argued that the patent did not include a stable

axle and wheeled vehicle frame since their inclusion would

render the patent void for overclaiming. See page six of this

Court’s decision of October 9, 1975. Counsel would now

contend that only the truckers could be direct infringers thus

implying that the truck and its assemblage are integral parts of

22a

the Turner Patent. The Court rejects this argument out of

hand. The time, for laches purposes, begins to run with the

notice of infringement since December 19, 1966. American

Home Products, 173 USPQ at 497; Baker, supra, at 1014, 166

USPQ at 467-468; Advanced Hydraulics, Inc., supra, at 3.

The Court, therefore, concludes that the delay in this case,

from the notice of infringement until the commencement of

the action, was both unreasonable and not excused.

Prejudice

The Court is aided with respect to the issue of prejudice to

the defendant by the presumption of damage which arises

where the delay exceeds the applicable six-year statute of

limitations. 35 U.S.C. § 286. As the Court noted in General

Electric Co. v. Sciaky Bros., Inc., 304 F.2d 724, 727, 134

USPQ 55, 57-58 (6th Cir. 1962):

“Where the unexplained delay exceeded the applicable

period of the statute of limitations, injury to the defen-

dant is presumed. In a patent infringement action equita-

ble principles are applied. Equity will not aid those who

have slept on their rights. The failure of General Electric

to take action over the many years constituted laches.

Whitman v. Walt Disney Productions, Inc. 263 F.2d 229,

120 USPQ 253 (CA 9); Smith v. Sinclair Refining Co.,

257 F.2d 328, 118 USPQ 183 (CA 2); Gillons v. Shell Co.

of California, 86 F.2d 600, 32 USPQ 1 (CA 9); Wood-

manse & Hewitt Mfg. Co. v. Williams, 68 F. 489 (CA 6).”

See also: Siemens, supra, at 61, 184 USPQ at 435-436; Con-

tinental Coatings Corp. v. Metco, Inc., 464 F.2d 1375, 1378,

174 USPQ 423, 425-426 (7th Cir. 1972); American Home

Products Corp., 173 USPQ at 497. This presumption of

damage to the defendant has been sufficient to support a

finding of laches, even absent a proof of actual damage.

Continental Coatings, supra; Baker, supra.

Even absent this presumption, the Court finds sufficient

prejudice to the defendant, resulting from the delay, to support

23a

port a finding of laches. Shortly after the notice of infringe-

ment was received by Dura, Murphy, counsel for Dura,

suggested that a reserve fund of four to five percent of the

sales price be set aside in the event of potential future infringe-

ment liability. This fund, whether contemplated or existing,

was apparently abandoned by Dura when no response was

forthcoming from Turner subsequent to Dura’s determination

of the patent’s invalidity. Had Turner timely prosecuted an

infringement action, after the notice of infringement had been

given to Dura, the defendant would have had the option of

continuing the royalty reserve. Plaintiff’s inaction thus resulted

in detriment to the defendant.

Further, other steps might have been taken by the defendant

to either mitigate or avoid liability to the plaintiff.

‘*A number of avenues by which defendant could have

protected itself would have been opened. Beltone could

have brought a declaratory judgment action under 28

U.S.C. § 2201 if the delay in waiting for the termination

of the German administrative and judicial proceedings

would have been burdensoine. See, e.g., American Home

Products Corp. v. Lockwood Mfg. Co., supra, 483 F.2d

at 1123, 184 USPQ at 436. Notification also may have

prompted Beltone to undertake an immediate reevalua-

tion of its earlier conclusion that Siemens’ ‘invention’ was

unpatentable and may have led defendant to modify its

production plans for the hearing aids in question. Any

subsequent decision by Beltone to proceed with its origi-

nal models would have been made with full knowledge of

the risk of litigation involving those products and the

company could have taken steps to mitigate any losses

attendant upon an adverse result in such a suit. Id. at

1124, 179 USPQ 198-199. See also Anchor Stove & Range

Co. v. Montgomery Ward & Co., supra, 114 F.2d at 895,

47 USPQ at 329-330.’’ Siemens, supra, at 62, 184 USPQ

at 436.

See also: Rome Grader & M. Corp. v. J. D. Adams Mfg. Co.,

135 F.2d 617, 619, 57 USPQ 442, 443-444 (7th Cir. 1943);

24a

Briggs v. Wix Corp. 308 F.Supp. 162, 170, 163 USPQ 283, 289

(N.D. Ill. 1969). Westco-Chippewa Pump Co., supra, at 186,

17 USPQ at 145-146. Thus, defendant has been damaged not

only by what it did in reliance on the inaction and apparent

acquiescence of the plaintiff but also by what it might have

done had the holders of the patent acted in a manner consistent

with one whose rights were being violated by another.

There having been an unreasonable delay, coupled with

prejudice to the defendant, a conclusion of laches is appropri-

ate.

Estoppel

While the underlying considerations are generally consistent,

there is a distinction between laches and estoppel. As was

indicated in Continental Coatings Corp., supra, at 1379, 174

USPQ at 426-427:

‘‘Although the distinction is sometimes overlooked or

obscured, there is indeed an important difference between

laches and estoppel. That difference is plainly identified

in this Court’s opinion in George J. Meyer Mfg. Co. v.

Miller Mfg. Co., 24 F.2d 505 (1928). In that case the

Court held that the defense of estoppel, as well as laches,

was available:

‘They not only knowingly sat by while appellee built

up its large business in bottle washing machines, but,

by their conduct, they encouraged the belief that

such business would be unmolested. When the Loew

Manufacturing Company charged appellee with in-

fringing its Adams & Rice patent and then withdrew

its claim, appellee had justification for enlarging its

capital and extending its business.’

In later cases this circuit has consistently denied the

patentee any relief if the evidence of unreasonable and

_ unexcused delay also disclosed that the patentee’s conduct

had encouraged the belief that the infringer’s business

would be unmolested. In each such case the infringement

et ke ee ee Pree rt be i eee

FG iO CC OIE BE RG OT

25a

notice was either withdrawn or followed by such a long

period of inactivity as to justify an inference of abandon-

ment. In some instances the Court failed expressly to

mention the term estoppel, but in each case ali relief was

denied the patentee.’’ (Citations omitted)

See also: Minnesota Mining & Mfg. Co., supra, at 869, 182

USPQ at 123-124; Westco-Chippewa Pump Co., supra, at 186,

17 USPQ at 145-146.

A careful review of the circumstances of this case as pre-

viously brought out satisfies the Court that the plaintiff should

be estopped from proceeding further with this action. The

plaintiff clearly knew of the possible infringement of the

defendant in late 1966. After defendant advised the plaintiff of

its opinion of the invalidity of the Turner Patent, the plaintiff

refrained from any action for a substantial period of time. The

defendant was thus justified in proceeding on the supposition

that the plaintiff had either acquiesced in its opinion of

invalidity or that the plaintiff was abandong its position. It is

also important to note that no notice was ever given Dura that

plaintiff intended to enforce any possible claims against them.

Finally, Dura was prejudiced by the delay.

There being no genuine issue of material fact in dispute with

respect to those facts necessary to a determination of the issues

of laches and estoppel, summary judgment, pursuant to Rule

56 of the Federal Rules of Civil Procedure, is appropriate.

For the reasons set forth above, defendant’s motion for

summary judgment be, and hereby is, granted.

26a

Opinion of the United States Court of Appeals for the Sixth

Circuit Reversing the Dismissal of the Complaint for

Laches and Estoppel

UNITED STATES COURT OF APPEALS

SIXTH CIRCUIT

Argued Oct. 17, 1978

Decided Feb. 16, 1979

No. 77-1118

TWM MANUFACTURING CO., INC. and TURNER QUICK LIFT,

Plaintiffs-Appellants,

—_—V.—

DURA CORPORATION,

Defendant-A ppellee.

Before EDWARDS, Chief Judge, MERRITT, Circuii Judge,

and LAWRENCE,”* District Judge.

MERRITT, Circuit Judge.

Plaintiff TWM, appeals from the entry of a summary

judgment sustaining defenses based on the equitable doctrines

of laches and estoppel in a patent infringement action. Plain-

tiff contends (1) that defendant Dura’s infringement of the

patent was deliberate and calculated, that the delay in bringing

suit was in part caused by Dura, and that the balance of

equities is sufficiently disputable to preclude summary judg-

ment; and (2) that the district court erred in applying the

° The Honorable Alexander A. Lawrence, Judge of the United States

District Court for the Southern District of Georgia, sitting by designation.

27a

doctrine of estoppel to foreclose injunctive relief and the

recovery of damages subsequent to the filing of the complaint.

We hold that the district court erred in granting summary

judgment on the grounds of laches and estoppel. Accordingly,

we reverse and remand the case for trial.

The patent (No. 3,285,621) was issued to Steven Turner, Jr.

on November 15, 1966. He granted plaintiff an exclusive

license. The infringement suit is about an inflatable air bag

connected to heavy springs designed to lift and lower axles on

truck trailers. The invention allows auxiliary wheels to be

suspended above the road surface in order to avoid drag when

a truck is carrying a light load and to be put in place on the

road when carrying a heavy load.

The infringement action was filed in February 1973, eight

years after a patent application was filed and the invention was

disclosed to the defendant by letter; just over six years after the

patent was issued and formal notice was given to the defendant

that its similar air bag suspension device infringed the patent;

just under six years after the defendant expressly rejected the

claim of infringement; three years after the filing of a suit

against TWM by a third party challenging the Turner patent’s

validity; and one year after that suit was settled.

I. LACHES

The only statute of limitations involving patent infringement

suits merely limits the period of recovery of damages to six

years, not a patentee’s right to maintain an action. Congress

has provided that “every patent shall contain. . . a grant to

the patentee . . . for the term of seventeen years . . . of the

right to exclude others from making, using, or selling the

invention.” 35 U.S.C. § 154 (1976). During this time, “a

patentee shall have remedy by civil action for infringement.”

35 U.S.C. § 281 (1976). Courts may enforce patent rights by

granting “injunctions in accordance with the principles of

equity. . . on such terms as the court deems reasonable,” and

by awarding “damages adequate to compensate for the in-

fringement.” 35 U.S.C. §§ 283, 284 (1976). The statute of

28a

limitations provides that “no recovery shall be had for any

infringement committed more than six years prior to the filing

of the complaint. . ..” 35 U.S.C. § 286 (1976).

Since the statute limits only the period for recovery of

damages, courts employ the traditional, equitable doctrine of

laches for determining the timeliness of infringement actions.

Courts use the six year statutory period for damages, however,

as a frame of reference for the application of the doctrine.’

This is consistent with normal equity practice which considers

the passage of time equivalent tc a comparable statute of

limitations as presumptive of laches.”

Using the six-year statutory period for recovery found in 35

U.S.C. § 286, courts have established the principle in patent

cases that delay in filing suit longer than six years after notice

of infringement creates a presumption of laches.’ Such a delay

is presumed to be unreasonable, and the defendant is presumed

to have been prejudiced.* The plaintiff will be barred from

seeking past damages by laches unless he can (1) rebut the

presumption of prejudices; (2) rebut the presumption of un-

reasonable delay by showing a good excuse for the delay;° or

1 General Electric Co. v. Sciaky Bros. Inc., 304 F.2d 724, 727 (6th Cir.

1962); Maloney-Crawford Tank Corp. v. Rocky Mountain Natural Gas Co.,

Inc., 494 F.2d 401, 403-04 (10th Cir. 1974); Whitman vy. Walt Disney

Productions, Inc., 263 F.2d 229, 231 (9th Cir. 1958).

2 Note Developments in the Law—Statutes of Limitations, 63

Harv.L.Rev. 1177, 1184 (1950).

3. Maloney-Crawford Tank Corp. v. Rocky Mountain Natural Gas Co.,

supra note 1; Continental Coatings Corp. v. Metco, Inc., 464 F.2d 1375 (7th

Cir. 1972) (opinion by Judge, now Mr. Justice Stevens).

4 General Electric Co. v. Sciaky Bros, supra note | at 727; Continental

Coatings v. Metco, supra note 3 at 1378.

S_ E.g., Maloney-Crawford Tank Corp. v. Rocky Mountain Natural Gas,

supra note | at 404.

6 E.g., American Home Prod. Corp. v. Lockwood Mfg. Co., 483 F.2d

1120 at 1122-24 (6th Cir. 1973), cert. denied 414 U.S. 1158, 94 S.Ct. 917, 39

L.Ed.2d 110 (1974).

29a

(3) show that the infringer has engaged in particularly egregi-

ous conduct which would change the equities significantly in

plaintiff’s favor.’ We must keep in mind, however, that laches

is an equitable doctrine with its origin in the conscience of the

chancellor, not in the common law rules of the King’s Bench or

Court of Common Pleas.

We agree with the district court’s finding of fact that the

period of delay in this case began to run from the notice of

infringement given to defendant on December 19, 1966, six

years and two months before plaintiff brought this infringe-

ment suit. The lower court was, therefore, correct in finding

that a presumption of prejudice exists since the period of delay

exceeds the comparable six-year statute of limitations. We also

agree with the lower court’s opinion that the other litigation

involving the same patent but a different adversary should not

toll the running of the laches period or defeat the defense—

with the qualifications outlined below concerning plaintiff’s

claim that the defendant sponsored the other litigation for

purposes of harassment. We, therefore, agree that the plaintiff

has rebutted neither the presumption of prejudice nor the

presumption of unreasonable delay.

Our disagreement with the district court arises from the fact

that plaintiff charges and has come forward with some evi-

dence that the defendant has engaged in egregarious conduct.

He has made some showing that defendant’s infringement was

the result of deliberate, calculated plagiarism. Plaintiff offers

proof which at trial may be found to support its position that

the defendant, upon receiving information about the Turner

invention in 1965, contrived with a consultant or employee to

7 Baker v. Simmons Co., 307 F.2d 458, 466 n.4 (Ist Cir. 1962); Potash

Co. v. Int’! Minerals & Chem. Corp., 213 F.2d 153, 155 (10th Cir. 1954);

Middletown v. Wiley, 195 F.2d 844, 847 (8th Cir. 1952); France Mfg. Co. v.

Jefferson Electric Co., 106 F.2d 605, 609 (6th Cir. 1939), cert. denied 309

U.S. 657, 60 S.Ct. 471, 84 L.Ed. 1006 (1940); MY-T Fine Corp. v. Samuels,

69 F.2d 76, 77 (2d Cir. 1934). See also Holmberg v. Armbrecht, 327 U.S. 392,

396, 66 S.Ct. 582, 90 S.Ct. 743 (1946); Gruca v. United States Steel Corp..

495 F.2d 1252, 1259-60 (3d Cir. 1974); Marcee v. United States, 455 F.2d 527,

197 Ct.Cl. 363 (1972).

30a

copy the invention and, in fact, copied it. Plaintiff additionally

offers proof that defendant initiated or sponsored the litigation

by a third party challenging the validity of the Turner patent in

order to harass plaintiff and to keep the patent’s validity in

question while defendant developed and sold its competing

product. If the plaintiff can prove these claims of plagiarism

and harassment at trial, the equities would not favor defen-

dant’s claim of laches.®

Since the district court did not discuss or make findings on

the issues of plagiarism and harassment, issues intimately tied

to the question of infringement, we believe that the case should

proceed to trial on the merits. If either of these issues is

resolved against the defendant, the district court should not

sustain the defense of laches. Only if both issues are resolved

against the plaintiff should the district court sustain the de-

fense.

Il. ESTOPPEL

Laches alone does not foreclose a plaintiff’s right in an

infringement action to an injunction and damages after the

filing of the suit. Only by proving the elements of estoppel may

a defendant defeat such prospective relief.” To work an estop-

pel, defendant must normally show, in addition to laches, that

he was misled in some fashion by the plaintiff. The difference

between laches and estoppel is well set out in the Seventh

Circuit’s opinion in Advanced Hydraulics, Inc. v. Otis Eleva-

tor Co., supra note 9, in which the late Mr. Justice Clark said:

. . where “deferment of action to enforce claimed rights

is prolonged and inexcusable and operates to defendant’s

material prejudice”, laches is “an effectual bar” to recov-

ery. [Citation omitted.]

* * * *

8 See note 7 supra.

9 Advanced Hydraulics, Inc. v. Otis Elevator Co., 525 F.2d 477, 479-80

(7th Cir.), cert. denied, 423 U.S. 869, 96 S.Ct. 132, 46 L.Ed.2d 99 (1975);

Continental Coatings v. Metco, supra note 3 at 1379-80.

3la

Estoppei, on the other hand, . . . “arises only when one

has so acted as to mislead another and the one thus misled

had relied upon the action of the inducing party to his

prejudice.” [Citation omitted.]

Id. at 479-80. The elusive doctrine of equitable estoppel at least

requires representations or conduct which justify an inference

of abandonment of the patent claim or that the plaintiff has

induced the infringer to believe that its “business would be

unmolested.”'° For silence to work an estoppel, some evidence

must exist to justify an inference that the silence was suffi-

ciently misleading to amount to “bad faith.”"'

We reverse the entry of summary judgment on the grounds

of estoppel for three reasons.

First, as we have already noted, plaintiff has raised the issue

of defendant’s entitlement to the defense of laches due to the

unresolved question of defendant’s alleged inequitable con-

duct. If proven, this misconduct may also defeat defendant’s

use of the equitable defense of estoppel.'? The district court

must therefore weigh this conduct in balancing the equities on

the question of defendant’s entitlement to this defense.

Second, even if the defendant’s conduct does not bar its

entitlement to the defense of estoppel, the district court must

alter the standard by which it examines this defense. The lower

court based its finding of estoppel on the fact that plaintiff had

not objected to the alleged infringement for a substantial

period of time. It said:

The plaintiff clearly knew of the possible infringement of

the defendant in late 1966. After defendant advised the

plaintiff of its opinion of the invalidity of the Turner

10 Continental Coatings v. Metco, supra note 3 at 1380.

11 Cf. Walter Bledsoe & Co. v. Elkhorn Land Co., 219 F.2d 556, 559 (6th

Cir. 1955) (Silence to work an estoppel in a suit for unpaid rents and

royalties, must amount to bad faith). See also Note, Developments in the

Law—Statutes of Limitations, 63 Harv.L.Rev. 1177, 1222-24 (1950).

12 See note 7 supra.

32a

Patent, the plaintiff refrained from any action for a

substantial period of time. The defendant was thus justi-

fied in proceeding on the supposition that the plaintiff

had either acquiesced in its opinion of invalidity or that

the plaintiff was abandoning its position. (Emphasis

added.)

This is an inadequate basis for a finding of estoppel, since, as

we have stated, estoppel requires more than mere silence. The

record does not disclose, and the district court does not point

to, any misrepresentations, affirmative acts of misconduct, or

intentionally misleading silence by the plaintiff. Such findings

are necessary in order to establish an estoppel.”

Third, the district court was clearly erroneous in finding as

an indisputable fact on summary judgment that the defendant

was “justified in proceeding on the supposition that the plain-

tiff had either acquiesced in its opinion of invalidity or that the

plaintiff was abandoning its position.” The record before the

district court on summary judgment, and now before us,

suggests that the defendant attentively followed the course of

the other litigation involving the Turner patent even if it did

not sponsor it. The record suggests that the defendant was

aware that plaintiff was defending its rights under the patent in

the other litigation. If this is indeed the case, based on its

knowledge of plaintiff’s position, defendant was not “justi-

fied” in believing that “the plaintiff was abandoning its posi-

tion.” We believe the facts on this question are sufficiently

disputable as to render the entry of summary judgment inap-

propriate.

Accordingly, we reverse the district court’s entry of summary

judgment and remand the case for trial on the merits of

plaintiff’s claims. At trial, the district court should consider

defendant’s equitable defenses according to the standards set

forth in this opinion. Costs of appeal are taxed to appellee.

13 See notes 10, 11 supra.

AS hie tos

33a

Opinion of the United States District Court for the Eastern

District of Michigan Finding the Patent-in-Suit

To Be Valid and Infringed

DISTRICT COURT

E.D. MICHIGAN, S. DIV.

No. 4-72852

Decided May 21, 1981

TWM MANUFACTURING COMPANY, INC.

—_—vV.—

DURA CORPORATION

GILMORE, District Judge (orally).

The court: All right, thank you, gentlemen, very much. It

has been a long case and your findings have been most helpful

to the Court.

First of all, I want to state that the Court has not considered

and will not consider the Defendant’s defense of abandonment

claimed under 35 USC 102(c). The question of abandonment

was not raised at any time during the trial, was not pleaded,

and was raised for the first time in the Defendant’s Proposed

Findings of Fact. Such a defense has never been pleaded,

propounded or proposed, even though the case has been in this

Court since late 1973 or early 1974, seven to eight years. The

Court, therefore, is not considering in its disposition the

defense of abandonment and will completely ignore it.

The first issue to be decided is the validity of the patent, and

I think I should address that, and then after I address that,

address infringement, and then, if necessary, go on to estoppel

and laches.

34a

I appears to me clearly, starting off, that this patent is a valid

p2tent, and the claims of the Defendant that it is obvious and

does not comply with 35 USC 112 are without basis. The

invention, in my opinion, is non-obvious, and the scope and

the content of the prior art, all presented at trial, do not

anticipate the Turner patent. This patent has the beauty of

simplicity. It provides a leaf spring and an airbag, and by a

very simple method. accomplishes the purpose of lifting and

lowering the wheels in question. This had never been done in

this way before. I think it is non-obvious to someone skilled in

the art.

In reaching this conclusion, I start with the basic proposition

that a patent is presumed to be valid and the burden is on the

party alleging invalidity. 35 USC 282. Defendant relies on 35

USC 103 and 35 USC 112 to invalidate the Turner patent.

With reference to 35 USC 103, the section reads, in pertinent

part,

“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 at the time the invention was made to a

person having ordinary skill in the art to which said

subject matter pertains.”

In determining the existence of obviousness, this Court must

look to the scope and content of the prior art and differences

between the prior art and the claims at issue. Graham v. John

Deere, 383 U.S. 1, 148 USPQ 459. I find no prior art that

anticipates the Turner patent.

Defendant has asserted that a combinetion of the patents to

Kulyk, 3093388, Hoffmeister, 1622/19, and Edgington,

1388809, as allegedly rendering the Turner invention obvious.

Kulyk has no place in the historical development of lift axles.

It is a paper patent and although I agree that a paper patent

can still be prior art, it is nonetheless a paper patent and

represents nothing more than problems overcome by Turner. It

is an add on to suspension springs with a torsion bar and the

lifting mechanism is a torsion bar and coil springs. In the

‘

;

}

35a

Turner patent, the leaf springs serve the same function as a

torsion bar, coil spring beam and shock absorber in the Kulyk

patent. It is obvious that this patent, in my opinion, does not

anticipate Turner in any way because, as I pointed out before,

Turner has the beauty of efficiency and economy in getting a

satisfactory result and satisfactory suspension.

The next significant claim to prior art is Hoffmeister. I think

it is clear that no one skilled in the suspension art would look

to the dangerous contraption of Hoffmeister to solve any

problem in the axle-suspension art. In fact, I think it is almost

silly to suggest Hoffmeister is relevant prior art. Hoffmeister is

a sledge device mounted under an automobile which used

compressed air for moving the toboggan member of the slide

to an operative position and springs for turning the toboggan

member to an inoperative position. Underneath the vehicle, the

compressed air control is used to move them to and from an

operative position, and there is also a pair of opposed springs

interposed between the toboggan member and the body. The

purpose of this Rube Goldberg contraption was to lift an

automobile in slippery weather and aid it in moving along in

ice and snow. It has nothing to do with axle suspension nor has

any function in the axle suspension art. The mere fact it has an

airbag and opposing leaf springs do not in any way make it

prior art for the instant case.

The third claim is that Edgington is also prior art. This

patent, a 1921 patent, is a patent that uses a leaf spring to raise

and lower a road scraper to scrape dirt. It is a crude, nonaxle

bearing road scraper that has nothing to do with the art of axle

suspension. If one is to say that Edgington is prior art, then

one would have to say that any device that uses a leaf spring in

any way to raise and lower any other device is prior art and

would invalidate the patent. That just is not true factually or

legally. Edgington I do not think is prior art.

Furthermore, the Turner patent claims do not recite an “old

combination.” See 35 USC 112. The Turner patent enjoys a

presumption of validity. No reasonable member of the public,

much less one skilled in the art, would be left with the

36a

impression from reading the Turner patent entitled “Wheeled

Vehicle Suspension” that Turner intended anything else but a

paient to lift axle suspensions. The recitation of the truck

frame and primary axle do not mislead and are properly used

to place the new suspension in its operative environment

whereby the truck frame serves to aid in retaining the non-load

bearing leaf spring in its unique upwardly biased mode and the

primary axle allows the unique suspension to function as a lift

axle.

The Turner patent derives a large portion of its inventiveness

from the unique way in which the combination of its parts

function to produce new, unexpected and synergistic results. It

does not recite old combinations, it is non-obvious. Some of

the greatest things in this world arise from simplicity, and

Turner has that beauty of simplicity and beauty of effective-

ness. It is clearly, in my opinion, a valid patent.

The next issue is whether Defendant’s device, the Dura 1400,

infringes the patent. Dura’s own release, dated March 28,

1967, Plaintiff’s Exhibit 1A, Pages 394 to 395, state this of the

Dura 1400 suspension, and this is Dura’s own language:

“This is an air-suspended axle in which a steel leaf spring

acts as a positive retracting force lifting the axle from the

ground automatically when the air is off * * *”

Continuing to the next paragraph, “With the air spring

inflated to operating pressure, the axle is forced against

the steel spring until the wheels are in proper contact with

the road. This gives the load an air ride. But the steel

spring, now a counter force against the air spring, as-

sumes a shock absorbing, stabilizing, and tracking func-

tion to improve the overall efficiency of the assemble.

“Asa result * * * the Model 1400 can be used on truck

chasis as pusher or tag, and also used for trailer applica-

maf

This description accurately describes the Dura 1400, its

functions and its operations. It is also a totally accurate

description of the functions and operation of the Turner

a a

37a

patent as recited in claims one to three of the Turner

patent. Claims one and three of the Turner patent, read

literally, cover the Dura 1400 suspension when installed on

a truck according to Dura’s installation instructions.

Every element, function and result recited in “laims one to

three of the Turner patent is correspondingly found in

Dura’s 1400 suspension when installed on a truck accord-

ing to Dura’s installation instructions. The Dura 1400

suspension performs substantially the same function as

the Turner in substantially the same way to obtain the

same results.

The claim of Defendant that the Dura 1400 doesn’t infringe

because the airbag is not between the frame and axle is not

significant in any way. The use of the two airbags on a pontoon

instead of one directly over the axle is a functional equivalent

to the use of one airbag between the axle and the frame. The

two systems function exactly the same as described in the

Turner claims. The lupi used in the Dura 1400 suspension

securing the end of the leaf spring to the vehicle frame is within

the meaning of the claims of the Turner patent, and the shackle

used in the Turner patent and the lupi used in the Dura 1400

are functional equivalents and are merely design alternatives.

Thus, it is clear that the use of airbags, two airbags on a

pontoon, instead of one directly over the axle, is but a

distinction without a difference. This Court concludes that

there is no question but what there has been and is infringe-

ment of the Turner patent by the Dura 1400 device, and the

Court further finds that there was willful infringement after

the issuance of the Turner patent because Dura was well aware

of the existence of Turner, was well aware of what Turner did,

was well aware of the practically identical nature of its Dura

1400 with the Turner patent. I therefore find willful infringe-

ment after the issuance of the patent as a matter of fact and

law.

I also want to comment on one fact that no one has

addressed in argument and one that has troubled me a great

deal, and I think it is of great significance to note. That is that

it was only on cross examination that it was brought out that

38a

Mr. Gottschalk, Defendant’s expert, was associated with the

Defendant’s firm during the pendency of this cause. On cross

examination, it was pointed out that on October 27, 1975,

while this case was pending, he was listed as of Counsel on

Defendant’s lawfirm stationery, and he admitted on cross

examination that during the pendency of this case, he was of

counsel to the defendant. This raises serious questions in my

mind as to whether he should have been permitted to testify at

all because of the proscriptions in Disciplinary Rules 5-101 and

5-102 of the Code of Professional Responsibility. However, he

did testify, and it was not until cross examination that the

Court learned that he had once been associated with the

lawfirm representing Defendants. Had this matter been

brought to my attention earlier, | would have had an opportu-

nity to determine whether I would permit Mr. Gottschalk to

testify as the Defendant’s expert. So there was a clear potential

violation of DR5-101 and DRS5-102 in having Mr. Gottschalk

testify. 1 think this casts serious doubt upon the credibility of

Mr. Gottschalk, and because of this, and because I was not

informed of his relationship, I am discounting and finding

much of Mr. Gottschalk’s testimony incredible.

| have found that the patent is valid, I have found that there

has been infringement, and I have found that there has been

willful infringement on the part of the Defendant. That brings

us now to the question of laches and estoppel, which must be

disposed of in the handling of this matter.

Now this matter has been to the Sixth Circuit in the case of

TWM Manufacturing v. Dura Corporation, 592 F.2d 346, a

1979 case. The Sixth Circuit dealt with these issues on appeal.

That Court held, first, with reference to laches, that Plaintiff

would be barred from seeking past damages by laches unless he

could (1) rebut the presumption of prejudice, (2) rebut the

presumption of unreasonable delay by showing good excuse;

or (3) show that the infringer had engaged in particularly

egregious conduct which would change the equities signifi-

cantly in Plaintiff’s favor. The Court, the Sixth Circuit, agreed

with the District Court, my predecessor in this case, that the

Plaintiff had not rebutted the presumption of prejudice nor the

39a

presumption of unreasonable delay, but held that the trial

court should make findings on allegations of plagiarism and

harassment, which purportedly constituted the egregious con-

duct on the part of the Defendant. The Sixth Circuit then held

that if either of these issues, that is, plagiarism or harassment,

is resolved against the Defendants, then the District Court

should not sustain the defense of laches. But if both issues

were resolved against the Plaintiff, the District Court should

sustain the defense.

Now Plaintiff claims that the Defendant, upon receiving

information about the Turner invention in 1965, contrived with

a consultant or employee to copy the invention, and in fact did

copy it, and that the Defendant initiated or sponsored litiga-

tion by a third party chaJlenging the validity of the Turner

patent in order to harass and keep the patent’s validity in

question while Defendant developed and sold its competing

product. These are the claims of the egregious conduct that the

Court of Appeals mentions.

Now first, with reference to copying and plagiarism. | think

the law is clear, and it has not really been disputed here — well,

first I think the facts show clearly, and I so find, that while the

Turner patent was pending, Mr. Turner sent the patent app!

tion to Page & Page, which was part of Dura Corporatior

that patent application was received by Dura Corporat

was the subject of much conversation in Dura (

What happened to that patent application after

seems to know. No witness was able to come

courtroom and say what happened to the patent:

was never acknowledged to Mr. Turner by Dura

acknowledged that it was received. The witness

Corporation say they have thoroughly searched

they are unable to find it, and as I say, there

this case as to what happened to that patent apy

was sent to Page & Page.

However, I think it is quite remarkable, ar

coincidence, that in a time frame very close to the

that patent application, that Dura came on the mar}

Dura 1400, which I have already held infringes P

40a

patent and willfully infringes the patent. It is true that Mr.

McGee said they got that from Mr. Vardi and that Mr. McGee

said that he never heard of Turner, but the fact remains that

Turner’s patent was long afterward the—I mean the Vardi

patent was long after the Turner patent. I think three years

afterwards, and I think it is indeed a strange coincidence that

the patent application would be sent to Dura, that Dura would

never acknowledge it, that Dura would then commence manu-

facturing and infringing a product, and after the product was

patented, Dura continued with willful infringement. I think all

of that is an odd series of circumstances and coincidences.

Now I think the law is clear, and as I read it from several

cases, including Graver Tank and Manufacturing v. Linde Air

Products Company, 339 U.S. 605, 85 USPQ 328, and other

equais copying, and that the burden of proof, when that is

shown, is upon the Defendant to show that there was no

copying and no plagiarism.

Now here I find as a matter of law that when there has been

access, as here, in patent law, | find this, I find that when there

is then similarity, or almost contemporaneously therewith with

the proposed 14 patent invention. I find that the burden has

then shifted to the Defendant to show that this was not

copying and that this was indeed independently arrived at

without reference to the Turner patent. I do not find the

Defendant has carried that burden. I think he has failed to

carry any burden on that. And so, I do think there was here

plagiarism on the part of the Defendant, and I think that that

plagiarism amounts to such egregious behavior as to get over

the question of laches so that I do not even have to turn to the

question of harassment. I think that there is sufficient evidence

of plagiarism which is egregious in this case to hold that

following the Sixth Circuit in TWM Manufacturing v. Dura

Corporation, that the defense of laches may not be asserted,

and therefore, there is no defense of laches that can be asserted

in this case, and I hold that it is not properly in the case.

That turns us then, if we may, to the question of harassment,

and the Court of Appeals held, on the question of estopped,

Page 350 of 592 F.2d, 201 USPQ at 436.

4la

“The record does not disclose, and the District Court does

not point to, any misrepresentations, affirmative acts of

or intentionally misleading silence by the Plaintiff. Such

findings are necessary in order to establish an estoppel.”

Clearly in this case there is no evidence of affirmative acts of

misconduct by the Plaintiff. There is no evidence whatever of

intentionally misleading silence by the Plaintiff and there is no

evidence of any misrepresentation by the Plaintiff. Plaintiff

was an innocent entrepreneur in this case who | think was done

in by the Defendant. Therefore, I find as a matter of law there

is no estoppel.

This being so, the Court having determined that the patent is

valid, having determined that there has been infringement,

having determined there has been willful infringement, having

determined that there has been no laches and determined that

there has been no estoppel, I hold that the Plaintiff is entitled

to injunctive relief, and he may have an injunction from this

day forward against infringement and manufacture of the

Dura 1400, and he may have damages to be assessed.

Now the question of whether I assess enhanced damages |

am not going to rule on today. 35 USC 284 provides that,

“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.”

I am not ruling today on what I will do with reference to

enchanced damages.

With reference to attorney fees, which have been asked for,

actual attorney fees, which are authorized under 35 USC 285,

the statute says, “The Court in exceptional cases may award

reasonable attorney fees to the prevailing party.” The Sixth

Circuit law on that point seems to be found in the case of

Deyerle v. Wright Manufacturing Company, 496 F.2d 45, 181

USPQ 685. On Page 54 and Page 55 of that opinion, 181

USPQ at 690-692, the Court says,

42a

“Section 285 of Title 35 permits an award of attorney’s

fees in patent cases where the circumstances are excep-

tional. In Hoge Warren Zimmerman Company v. Nourse

& Company, 293 F.2d 779, 784, 130 USPQ 382, 386-387

we noted that ‘exceptional circumstances have been inter-

preted as incorporating concepts of fraud, malice, bad

faith and other similar concepts.’ In Uniflow Manufac-

turing Company v. King-Seeley Thermos Company, 428

F.2d 335, 341, 166 USPQ 70, 74-75, we indicated that an

award of attorneys’ fees will be upheld if the trial court

specifically finds conduct that is unfair, in bad faith,

inequitable or unconscionable. An award made pursuant

to findings such as these is discretionary.”

In this case I have found willful infringement. I have

certainly found misconduct as a matter of fact and law by

Dura Corporation and its agents. However, I am not prepared

to say that I can go as far to say that there has been bad faith

action, that the Dura Corporation has acted in such bad faith

as to authorize attorneys’ fees, so I do not think the standard

of 35 USC 284 as set forth in Deyerle v. Wright Manufacturing

Company has been met. This does not mean, however, that I

cannot consider enhanced damages because as I read the law,

the standard for enhanced damages up to treble damages is not

as stringent a standard as the standard which is set forth for

the granting of the actual attorney fees.

Therefore, for the reasons given, I will enter an injunction

immediately. I will ask the Plaintiff to prepare a judgment on

this. I will direct the parties to communicate with the Clerk

forthwith or within the next week to obtain a date for the

taking of testimony on the issue of damages. What I have just

said will constitute the findings of fact and conclusions of law

of the Court as required by FRCP 52A.

All right, gentlemen, thank you all very much.

Mr. Van Santen: Your Honor, may | make one comment?

The Court: You may, sir.

Mr. Van Santen: In defense of former Commissioner of

Patents, Mr. Gottschalk, I think I wouid like to move the

43a

Court for leave to present evidence of the fact that his retainer

as an expert in this matter was long after he had severed all

relationship with our lawfirm.

The Court: Well, that may be, and I didn’t say that it

wasn’t, sir. What I said was that he was a member of your

lawfirm at the time this case was being prosecuted; therefore,

he is presumec to be participating in it under the vicarious

disqualification rule, and that that was not brought out nor

disclosed to me until cross examination came in. It is a matter,

in my opinion, that should have been brought before he

testified and the facts set forth then and a ruling sought as to

whether he could or could not testify as an expert. His

association with your firm during the course of this lawsuit is

what would serve as a possible, I am not saying he would be,

after I heard all the facts, I am saying is a possible disqualify-

ing factor under DRS5-101 or DRS5-102. Now it may or may

not. I am not saying it is. But I think the fact that it was not

revealed to this Court, that I had to learn about it on cross

examination before he testified is the thing that troubled me

and upset me. I am not saying he would have been disquali-

fied. I am not saying I would have disqualified him had you

brought it to my attention, but I think the fact that it was not

brought to my attention prior to the time he testified nor was it

brought to my attention by the proponent of the evidence on

direct examination, it was forced to wait until cross is what

troubled me because there may or may not be a basis for

disqualification. But | am troubled that I was not given the

opportunity to pass on that until we got into cross examination

when it was too late.

Opinion of the United States Court of Appeals for the Sixth

Circuit Affirming the Validity and Infringement Judgment

UNITED STATES COURT OF APPEALS

SIXTH CIRCUIT

Argued March 24, 1983

Decided November 18, 1983

Rehearing and Rehearing En Banc

Denied Jan. 9, 1984

Docket Nos. 81-1530, 82-1265

TWM MANUFACTURING COMPANY, INC., and

TURNER QUICK-LIFT CORPORATION,

Plaintiffs-A ppellees,

—_—V—

DURA CORPORATION and KIDDE, INC.,

Defendants-Appellants.

Before: MERRITT and WELLFORD, Circuit Judges, and

BROWN, Senior Circuit Judge.

BAILEY BROWN, Senior Circuit Judge.

Appellee TWM Manufacturing Company, the owner of the

Turner patent (No. 3,285,621), brought this infringement suit

against appellant Dura Corporation.’ TWM claims that its

l Kidde, Inc. is the parent corporation of Dura and was joined as a

party defendant pursuant to Rule 25(c), Fed.R.Civ.P.

45a

patent, a design for a device to raise and lower an auxiliary

axle and wheels, is infringed by Dura’s Model 1400 series

suspension. The district court held that the patent was valid

and denied Dura’s defense of laches and estoppel. The court

granted TWM a permanent injunction prohibiting further

infringement by Dura and ordered an accounting of the profits

from the infringement. Nine months later, the court found

Dura in criminal contempt for violating the injunction by

selling spare parts for the suspension. The court assessed Dura

with a fine and attorneys’ fees. For the reasons stated below,

we affirm the lower court’s holding that the suit was not

barred by laches and estoppel and that the Turner patent is

valid. We hold, however, that although the court properly

found that Dura had violated the injunction, the evidence fails

to support a holding of criminal contempt.

On November 15, 1966 Stephen Turner, Jr. was awarded

U.S. Patent No. 3,285,621 for a “Wheeled Vehicle Suspen-

sion.” Turner’s device enables a truck to engage an additional

axle and wheels to carry heavy loads. Airbags above the

auxiliary axle are inflated to lower the wheels to the road

surface. Two upwardly biased leaf springs attached to the

vehicle frame at each end of the axle resist the axle as it is

lowered. When the additional wheels are no longer required,

the airbags are deflated and the springs raise the wheels above

the road surface to decrease drag and reduce wear on the tires.

When the auxiliary axle is engaged, the airbags and springs

stabilize the suspension and act as shock absorbers.

In March 1965, Turner sent a copy of his patent application

to the Dura Corporation, a manufacturer of truck suspensions.

Dura received the application but never responded. In Decem-

ber 1966, several weeks after Turner received his patent, Dura

began to advertise its 1400 series suspension. Later that month,

46a

Turner sent Dura a notice of infringement. More than six years

later, in February 1973, TWM, which had acquired an exclu-

sive license to the patent in 1969, filed an infringement suit

against Dura.

On December 3, 1975 the district court granted Dura sum-

mary judgment on the grounds of laches and estoppel. The

court held that the delay of more than six years in commencing

the action was unreasonable and prejudiced the defendant,

barring recovery by TWM. On appeal, this court reversed the

district court’s judgment and remanded the case with guide-

lines for applying the defenses of laches and estoppel. TWM

Mfg. Co. v. Dura Corp., 592 F.2d 346 (6th Cir.1979).

On remand, the case was tried before the court sitting

without a jury. On May 21, 1981 the court delivered an opinion

from the bench adjudging the Turner patent valid and holding

that Dura had willfully infringed the patent. The trial judge

held that Dura’s failure to rebut evidence implying that it had

copied the Turner patent precluded Dura from raising the

defense of laches. The court also found that TWM committed

no acts of misrepresentation that would estop its infringement

claims against Dura. The district court permanently enjoined

Dura against further infringement and ordered an accounting

of the damages.

The district court denied Dura’s motion under Rule 62,

Fed.R.Civ.P., to stay the injunction and damage determina-

tion. On appeal, this court affirmed the district court’s denial

of Dura’s motion to stay the injunction pending appeal of the

lower court’s decision on the merits. This court, however,

reversed the district court and granted Dura’s request to stay

the accounting procedures. Following this court’s order, Dura

posted a $5,000 supersedeas bond.

On March 5, 1982, in response to TWM’s motion to hold

Dura in contempt, the district court found that Dura had

violated the terms of the injunction by selling repair parts for

the model 1400 suspension. The court held Dura in criminal

contempt, fined the company $10,000 and assessed it with

$12,097.10 in attorneys’ fees and expenses for TWM’s costs of

bringing the contempt action.

47a

Dura appeals the district court’s holdings that the Turner

patent is valid and that the infringement suit is not barred by

TWM’s delay. Dura also appeals the holding of criminal

contempt for violation of the injunction. These appeals were

consolidated for argument and decision.’

Ii.

A. Patent Validity

Dura’s principal argument is that the Turner patent is invalid

because it is obvious to someone skilled in the art.’ The

ultimate question of obviousness is one of law. Sakraida v. Ag

Pro, Inc., 425 U.S. 273, 96 S.Ct. 1532, 47 L.Ed.2d 784 (1976);

Reynolds Metals Co. v. Acorn Bldg. Components, Inc., 548

F.2d 155 (6th Cir.1977). The district court’s determination of

the factual predicates of obviousness are binding on appeal

unless the findings are clearly erroneous. Armco, Inc. v.

Republic Steel Corp., 707 F.2d 886, 888-89 (6th Cir.1983);

Minnesota Mining and Mfg. Co. v. Blume, 684 F.2d 1166,

1172 (6th Cir.1982); cert. denied, _____ U.S. , OS S.C.

1449, 75 L.Ed.2d 803 (1983).

In its challenge to the district court’s judgment that the

Turner patent was not obvious, Dura contends that the court

comitted the following errors: (1) The court failed to make

factual findings as required by Hieger v. Ford Motor Co., 516

F.2d 1324 (6th Cir.1975), cert. denied, 423 U.S. 1056, 96 S.Ct.

788, 46 L.Ed.2d 645 (1976). (2) The court failed to consider

2 Dura does not appeal the district court’s finding that its manufac-

ture of the 1400 suspension willfully infringed the patent.

3 35 U.S.C. § 103 states:

A patent may not be obtained though the invention is not identically

disclosed or described as set forth in section 102 of this title [35 U.S.C.

§ 102], 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 at the time the invention was made to a

person having ordinary skill in the art to which the subject matter

pertains. Patentability shall not be negatived by the manner in which

the invention was made.

48a

evidence that would have shown that the Turner design was

obvious to a person skilled in the art. (3) The court improperly

discounted the testimony of Dura’s expert witness, Robert

Gottschalk. We have considered these alleged errors and find

them without merit.

When a question of obviousness is raised, the district court

must make factual findings regarding the “scope and content

of the prior art,” “the difference between the prior art and the

claims at issue,” and the “level of ordinary skill in the pertinent

art.” Graham v. John Deere Co., 383 U.S. 1, 17 86 S.Ct. 684,

694, 15 L.Ed.2d 545 (1966); Hieger, 516 F.2d at 1327. Such

findings need only be apparent from the court’s opinion and

need not be set forth specifically. See Universal Elec. Co. v.

A.O. Smith Corp., 643 F.2d 1240 (6th Cir.1981); National

Rolled Thread Die Co. v. E.W. Ferry Screw Prod., 541 F.2d

593 (6th Cir. 1976). The record shows that the trial court made

findings that satisfy the requirements of the John Deere test,

and we hold that none of these findings is clearly erroneous.

The test for pertinent art is “similarity of elements, prob-

lems, and purposes.” Skega Aktiebolag v. B.F. Goodrich Co.,

420 F.2d 1358, 1359 (6th Cir.), cert. denied, 400 U.S. 825, 91

S.Ct. 49, 27 L.Ed.2d 54 (1970). In defining the scope and

content of prior art, the court considered three patents: Kulyk

(No. 3,093,388), Hofmeister (No. 1,622,719) and Edginton

(No. 1,388,809). Only Kulyk, the court held, was pertinent as

prior art. Hofmeister uses air bags and opposing elliptic leaf

springs to raise and lower sled runners beneath a vehicle,

transforming an automobile into an “autoboggan.” Edginton

employs elliptic leaf springs and a simple lever to raise and

lower a road scraper. The court held that these patents did not

constitute prior art because their designs contributed nothing

to solve the special problems of a liftable, auxiliary axle

suspension. Testimony at trial established that the trucking

industry had experimented with various ways to engage aux-

iliary axles and stabilize the load-carrying capacity of such

systems. We do not believe that the court erred in limiting the

prior art to developments within this field. See Omark Indus-

tries, Inc. v. Textron, Inc., 688 F.2d 1242, 1248 (9th Cir.1982).

49a

The district court found that “it is clear that no one skilled in

the suspension art woulu look to the dangerous contraption of

Hofmeister to solve any problems in the axle-suspension art.”

This finding is supported by expert testimony in the record.

The only relevance of the Edginton, the court held, was its use

of a leaf spring. The court refused, we think properly, to

extend the scope of prior art to “any device that uses a leaf

spring in any way to raise and lower any other device.”

The Kulyk patent, in contrast with the other patents cited by

Dura, discloses a device to raise and lower an auxiliary axle.

Kulyk employs air bags to lower an axle assembly which is

raised by three coil springs and a torsion bar when the bags are

deflated. The torion bar runs across the width of the vehicle

frame, and the springs are located at the middle of the axle.

The device also uses shock absorbers to stabilize the wheels

against lateral forces. The court found that Turner differed

from Kulyk in that Turner’s leaf springs serve the same

function as the torsion bar, coil springs and shock absorbers in

the Kulyk patent. The court concluded that Kulyk “represents

nothing more than problems overcome by Turner.”*

The trial court failed to make express findings regarding the

level of ordinary skill in the pertinent art. This omission,

however, is not reversible error for we are satisfied that the

court adequately considered this element of the John Deere

formulation. Implicit in the court’s holding is a determination

of ordinary skill. See Universal Electric Co. v. A.O. Smith, 643

F.2d at 1246-47; Frantz Mfg. Co. v. Phenix Mfg. Co., 457 F.2d

314, 322-23 (7th Cir.1972). The district court expressly found

that no one skilled in the art would look to Hofmeister to solve

the problems of designing a load-bearing, auxiliary axle sus-

pension. The court’s consideration of the Kulyk patent and its

4 Dura objects to the court’s characterization of Kulyk as a paper

patent. ‘Paper patent’ refers to a patent that was never used commercially.

But the trial judge noted: “[A]lthough I agree that a paper patent can still be

prior art, it is nonetheless a paper patent.” This observation was not error.

The commercial success of the Turner patent when compared to the Kulyk

patent is a relevant, albeit secondary, consideration. Kaiser industries vy.

McLouth Steel Corp., 400 F.2d 36, 42 (6th Cir. 1968).

50a

finding that the patent “has no place in the historical develop-

ment of lift axles” indicates that the court was aware of and

was implicitly stating the engineering skill that had developed

within the pertinent art.

As with all the elements of the John Deere test, Dura has the

burden of proof on the issue of ordinary skill. Armco Inc. v.

Republic Steel Corp., 707 F.2d at 889-90. In this regard, Dura

relies on evidence of the contemporaneous development of an

unsuccessful hydraulic lift axle by Michael Bilas, an “ordinary

trucker.” If anything, this evidence is indicative of a non-spe-

cialized level of skill rather than professional training and

expertise. Such a level of skill is consistent with the court’s

evaluation of the pertinent art and the advantages of Turner’s

design. Thus, we cannot hold the finding of ordinary skill

which implicitly informed the court’s holding was clearly

erroneous.

Dura argues that the trial court erred in failing to consider

contemporaneous development of lift axles as evidence that the

Turner device was obvious to someone skilled in the art. The

Bilas design, as noted above, was a failure. It, like Kulyk, is

noteworthy because it illustrated the problems that Turner

overcame. Dura also contends that an inventor under its

contract, Sam Verdi, developed the 1400 suspension just as

Turner received his patent. Yet there is considerable evidence to

suggest that Verdi plagiarized the Turner patent. The court’s

refusal to accept Dura’s account of the origin of the 1400

suspension was not clearly erroneous.

Dura called as its only expert witness Robert Gottschalk.

During cross examination, Gottschalk admitted that he was

“of counsel” to Dura’s law firm during the pendency of the

infringement suit. In its opinion adjudging the Turner patent

valid, the court found that the failure to disclose Gottschalk’s

position at the outset of his testimony cast “serious doubt upon

the credibility of” his statements. The court heid that the

association with Dura’s law firm was a “clear potential viola-

tion of DR 5-101 and DR 5-102. . . and because of this, and

because | was not informed of his relationship, | am discount-

Sla

ing and finding much of Mr. Ge*tshalk’s testimony incredi-

ble.”* Dura argues on appeal that this holding was an abuse of

the court’s discretion.

The trial court exercises broad discretion in its evaluation of

expert testimony, and its findings are not to be distrubed unless

clearly erroneous. United States v. Green, 548 F.2d 1261, 1268

(6th Cir.1977). Although some courts have permitted lawyers

to testify on behalf of clients, the practice has been regularly

criticized. See e.g., United States v. Nyman, 649 F.2d 208 (4th

Cir. 1980); Waltzer v. Transidyne General Corp., 697 F.2d 130

(6th Cir.1983); Lau Ah Yew v. Dulles, 257 F.2d 744 (9th Cir.

1958). In Universal Athletic Sales Co. v. American Gym,

Recreational & Athletic Equip. Corp., 546 F.2d 530, 539 (3d

Cir. 1976), cert. denied, 430 U.S. 984, 97 S.Ct. 1681, 52

L.Ed.2d 378 (1977), the lower court was found to have erred

by placing too much reliance on the testimony of a patent

expert associated with the defense counsel. The court held,

“We believe that, while a district court may in limited circum-

stances receive the testimony of a lawyer-witness, the value of

such testimony must be discounted because of the interest of

the lawyer or his firm in the outcome.” 546 F.2d at 539-40. In

this case, doubts about the value of Gottschalk’s testimony

were compounded by Dura’s failure to disclose his relationship

to counsel before his testimony. Accordingly, we hold that the

court’s assessment of Gottschalk’s credibility was not an abuse

of discretion.

The district court’s holding that the Turner patent was not

invalid for obviousness is a determination of law that is fully

reviewable on appeal. Westwood Chem. Inc. v. Owens-Corn-

ing Fiberglas Corp., 445 F.2d 911, 914 (6th Cir.1971), cert.

denied, 405 U.S. 917, 92 S.Ct. 941, 30 L.Ed.2d 786 (1972). To

pass the test of obviousness, a combination patent such as

Turner must possess an “impalpable something,” a “synergis-

5 Rules DR 5-10i and 5-102 of the Code of Professional Responsibil-

ity provide that a lawyer shall refuse employment or withdraw from a case if

the lawyer “knows or it is obvious that he or a lawyer in his firm ought to be

called as a witness... .”

52a

tic” effect such that the whole is greater than the sum of the

parts. Kearney & Trecker Corp. v. Cincinnati Milacron, Inc.,

$62 F.2d 365, 370 (6th Cir.1977). The evidence produced at trial

shows that the trucking industry had long sought a method to

temporarily engage an auxiliary axle. Various attempts to

provide such a device proved impracticable or inefficient.

Turner’s design, incorporating elements which were already in

use in axle suspensions, provided a simple, efficient, and

complete solution to the problems encountered in earlier at- |

tempts. The use of upwardly biased leaf springs provided the

necessary lif: while giving the unit lateral stability when the

wheels were engaged with the road. The combination of the

airbags and leaf springs provided what the industry refers to as

an “air ride,” a preferred form of shock absorption. Because

the system could be installed without additional elements such

as a torsion bar, hydraulic springs, or coiled springs, running

across the width of the vehicle, the system could be used in the

front of or in the rear of a drive or power axle. We agree with

the district court that the Turner patent achieved synergism in a

manner that was not obvious to someone skilled in the perti-

nent art. This holding is further supported by the immediate

commercial success of the Turner design and its clear satisfac-

tion of long felt needs in the industry. Graham v. John Deere,

383 U.S. at 17-18, 86 S.Ct. at 693-694. Therefore, we affirm

the holding that the Turner patent is valid.

B. Estoppel and Laches

In TWM Mfe. Co. v. Dura Corp., 592 F.2d 346 (6th

Cir.1979), this court reversed the district court’s award of

summary judgment to Dura on the grounds of laches and

estoppel. This court ruled that TWM’s delay of more than six

years in filing suit would bar any recovery only if the require-

ments of laches and estoppel were both satisfied. Although the

delay created a presumption of laches, TWM could defeat the

bar by: (1) rebutting the presumption of prejudice; (2) showing

a good excuse for the delay; or (3) showing that Dura had

“engaged in particularly egregious conduct which would

ce ee

53a

change the equities in plaintiff’s favor.” 592 F.2d- at 349.

TWM’s allegations that Dura plagiarized the patent, if proven

at trial, would demonstrate egregious behavior and defeat

Dura’s claim of laches. /d. Lalches alone, moreover, would bar

recovery only of damages caused by the infringement before

TWM filed suit. To defeat prospective relief, Dura must prove

the elements of equitable estoppel. Estoppel requires, in addi-

tion to a showing of laches, “representations or conduct which

justify an inference of abandonment of the patent claims.”

Mere silence is not sufficient; the defendant must show “mis-

representation, affirmative acts of misconduct, or intentionally

misleading silence by the plaintiff.” /d. at 350.

On remand, the district court held that neither laches nor

estoppel would preclude recovery by TWM. The court found

“sufficient evidence of plagiarism which is egregious in this

case” to defeat the bar of laches. With regard to estoppel, the

court found no evidence of misconduct, misleading silence, or

misrepresentations by TWM. On appeal, Dura argues that the

court erred in making these determinations because the court

improperly placed on Dura the burden of showing that it had

not plagiarized the patent. The court, drawing support from a

doctrine of copyright law, held that TWM’s proof that Dura

had access to the patent and that it had contemporaneously

produced an infringing device, shifted the burden to Dura to

prove the independent development of the 1400 system. Dura,

the court found, failed to carry this burden.

Laches, an equitable doctrine, is left to the sound discretion

of the trial judge. Potash Co. v. Int’! Minerals & Chem. Corp.,

213 F.2d 153, 155 (10th Cir. 1954). The doctrine’s provenance

is the conscience of the Chancellor, and its application is not

governed by the rules of the common law. Within this wide

scope, we must determine whether the trial court abused its

discretion by finding the equities in TWM’s favor because

Dura could not rebut evidence of plagiarism.

Plagiarism, or the infringement of a common law copyright,

may be shown by a finding of access taken together with the

elements of similarity. See Smith v. Little, Brown & Co., 360

54a

F.2d 928, 930 (2d Cir.1966); Herwitz v. National B’dcasting

Sys., 210 F.Supp. 231, 235 (S.D.N.Y.1962). This rule avoids the

unfairness that would result from requiring the plaintiff to

prove the actual act of appropriating protected material. Direct

evidence of copying is rarely, if ever, available. Novelty Textile

Mills v. Joan Fabrics Corp., 558 F.2d 1090, 1092 (2d Cir.1977).

The appeal of this reasoning is found in Graver Tank v. Linde

Air Prod. Co., 339 U.S. 605, 70 S.Ct. 854, 94 L.Ed. 1097

(1950), a decision cited by the district court in this case. In

Graver Tank, the Supreme Court affirmed a lower court’s

finding of patent infringement based on the doctrine of equiva-

lents. This doctrine provides that a device can infringe a

nonidentical device if it performs substantially the same func-

tion in substantially the same way. If the defendant can provide

no adequate explanation of the independent development of

the allegedly infringing device, “the trial court could properly

infer that the accused [device] is not the result of expermina-

tion or invention.” 339 U.S. at 612, 70 S.Ct. at 858.

We cannot hold that the trial court abused its discretion in

ruling that evidence of Dura’s plagiarism barred Dura from

raising the equitable defense of laches. The court’s shifting of

the burden of proof to Dura was reasonable in light of the

difficulties of proving the actual act of copying. The court’s

refusal to accept Dura’s version of the development of the 1400

suspension is fully supported by the record.

We also affirm the district court’s holding that Dura failed

to prove the elements of equitable estoppel. Dura’s failure to

show laches also defeats its claim of equitable estoppel. Dura,

moreover, cites on appeal no evidence that contravenes the

lower court’s finding that Turner had not engaged in inten-

tionally misleading silence or affirmative misrepresentation.

Therefore, we hold that neither laches nor estoppel bars

TWM’s recovery of damages in this case.

il.

A. Violation of the Injunction

The district court’s injunction prohibited Dura from

“directly or indirectly making, using or selling or causing to be

55a

made” any device employing the patented features of the

Turner suspension. The order further enjoined Dura

(d) From actively inducing and/or contributing to the

infringement of said patent by supplying to others the

Model 1400 Series suspension or any material part thereof

especial [sic] made or especially adopted [sic] for use in

the Model 1400 Series suspension which part is not a

staple article or commodity of commerce suitable for

substantial non-infringing use.

This provision was taken from 35 U.S.C. § 271(c) which

defines contributory infringement. For purposes of this appeal,

we treat the scope of the injunction as coextensive with that of

35 U.S.C. § 271(c).°

Dura sold feather springs, brackets and other repair parts

for its 1400 suspension after the injunction was entered on

June 1, 1981. These sales continued until the court found Dura

in criminal contempt for violating the injunction on March 5,

i982.’ Dura does not deny that its sale of spare parts was

contrary to the terms of the injunction, but it argues that the

sale of these parts was nevertheless protected under Aro

Manufacturing Co. v. Convertible Top Co., 365 U.S. 336, 81

S.Ct. 599, 5 L.Ed.2d 592 (1961) [hereinafter cited as Aro / |

and Aro Manufacturing Co. v. Convertible Top Co., 377 U.S.

476, 84S.Ct. 1526, 12 L.Ed.2d 457 (1964) [hereinafter cited as

Aro IT }.

In Aro I, a licensee of a combination patent for a convertible

automobile top sought to enjoin Aro from producing and

6. 35 U.S.C. § 271(c) states:

Whoever sells a component of a patented machine, manufacture,

combination or composition, or a material or apparatus for use in

practicing a patented process, constituting a material part of the

invention, knowing the same to be especially made or especially

adapted for use in an infringement of such patent, and not a staple

article or commodity of commerce suitable for substantial noninfring-

ing use, shall be liable as a contributory infringer.

7 It is undisputed that the spare parts in issue were non-staple articles

especially made or adapted for the 1400 series suspension.

56a

selling an unpatented component—the fabric—for repair of

installed tops. The Court held that Aro could not be guilty of

contributory infringement under 35 U.S.C. § 271(c) unless

there was a direct infringement of the patent. Replacement of

worn tops, the Court ruled, was a permissible repair of

property, not a reconstruction of the combination that would

directly infringe the patent. Thus, the manufacture and sale of

the replacement fabric did not contribute to a direct infringe-

ment of the combination patent. 365 U.S. at 341-45, 81 S.Ct.

at 602-04.

The Court’s holding in Aro J was narrowed by Aro // in a

respect crucial to Dura’s appeal. In Aro // the Court held Aro

liable for selling fabric to any customer who owned a converti-

ble manufactured by a company that was unlicensed to pro-

duce the convertible tops. Because the manufacture of these

tops was unauthorized, the customers’ use and even the repair

of the structures directly infringed the patent. In Aro I/, “as

was not the case in Aro IJ, the direct infringement by the car

owners that is a prerequisite to contributory infringement by

Aro was unquestionably established.” 377 U.S. at 486, 84 S.Ct.

at 1532.

Because Dura never acquired a license to the Turner patent,

Aro II would seem to dictate that Dura’s sale of non-staple

repair parts to owners of the 1400 series suspension was

contributory infringement. Dura attempts to escape this con-

clusion by arguing that owners of its infringing suspensions

received an implied license from TWM to use those devices.

Dura relies on Wagner Sign Service, Inc. v. Midwest News Reel

Theatres, Inc., 119 F.2d 929 (7th Cir. 1941) to argue that

because the accounting order and supersedeas bond assured

TWM of compensation for infringing units sold before June 1,

1981, owners of those units had received a constructive license

to use and repair the suspensions.

We reject Dura’s reasoning that its customers were licensed

to use and repair the infringing suspensions. TWM has entered

into no agreement with Dura releasing it or its customers from

claims for infringement. Except for the supersedeas bond,

TWM is in the same position as the patentee in Union Tool Co.

SS SS ae

57a

v. Wilson, 259 U.S. 107, 42 S.Ct. 427, 66 L.Ed. 848 (1922).

Wilson, a patentee who had been awarded an injunction and

an accounting of damages, brought a contempt action against

the original defendant for violating the injunction by selling

spare parts. The Court upheld the contempt finding, ruling

that Wilson had received no compensation which would license

the use of the devices produced by the infringer.

Even if we were prepared to following the general ruling in

Wagner Sign, this case is clearly distinguishable. There, the

court held that a “supersedeas bond which assures the payment

of all profits and damages” was equivalent to actual compen-

sation. Yet the court noted “that no question is raised on the

record but that the bond is ample to protect the plaintiff in any

judgment.” 119 F.2d at 930 n. 1. Dura’s claim that the

supersedeas bond assures TWM of compensation borders on

the disingenuous. TWM asserts, and it is not disputed by Dura,

that the $5,000 bond is far from sufficient to cover the

expected award from the accounting. Dura, it should also be

noted, never attempted to clarify to this court or to the district

court its intention to treat the order a supersedeas bond as

constituting a license. In its successful application to this court

to stay the accounting, Dura suggested a $5,000 bond to cover

the “nominal damages” resulting from the delay in the ac-

counting. The amount of the bond should cover only these

damages, Dura argued to this court, not the potential damages

resulting from years of infringement. A bond established on

such grounds provided TWM no assurance that it would

recover damages as determined by the accounting. Because

Dura failed to establish that the owners of the 1400 suspen-

sions were licensed by TWM, Dura’s sale of the spare parts

was contributory infringement in violation of the terms of the

June 1, 1981 injunction.

B. Criminal Contempt

Dura contends that the court’s finding of criminal contempt

violated due process and Rule 42(b) of the Federal Rules of

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Criminal Procedure.* Dura argues that it received improper

notice of the criminal charges and that the court failed to

follow the procedures of Rule 42(b) in the prosecution of the

contempt charge.” Dura also maintains that the evidence is

insufficient to support a finding of criminal contempt.

TWM’s motion and brief for a finding of contempt were

served on Dura by first class mail on February 17, 1982. An

accompanying Notice of Hearing stated that the motion would

be heard on March 5, 1982. In the motion, TWM sought a

decree holding Dura in contempt, “both civil and criminal,”

for violation of the June 1, 1981 injunction. TWM alleged that

“Dura has been flagrantly violating the Injunction by continu-

ously selling on numerous occasions, essential parts of the

infringing ‘1400’ since June 1, 1981.” The brief asserted that

“Dura and Kidde’s willful violation of this Court’s Injunction

is shown beyond a reasonable doubt by the attached affidavit

evidence.” The attached affidavits included copies of invoices

8 The district court denominated the penalty as one for criminal

contempt. We recognize, however, that a lower court’s characterization of

contempt proceedings is not determinative for purposes of appea!. Lewis v.

Baune, 534 F.2d 1115, 1119 (Sth Cir. 1976); United States v. Powers, 629 F.2d

619, 626 (9th Cir. 1980). Here, however, since there was a $10,000 fine

payable to the government, there is no question that the proceedings were

criminal in nature. Richmond Black Police Officers Asso. v. Richmond, 548

F.2d 123, 125 (4th Cir. 1977); Douglass v. First Nat’l Realty Corp., 543 F.2d

894, 898 (D.C.Cir. 1976). The fine in this case was punitive, not remedial,

and was assessed to vindicate the authority of the court. See In Re Timmons,

607 F.2d 120, 124 (Sth Cir. 1979); Carbon Fuel Co. v. United Mine Workers,

517 F.2d 1348, 1349 (4th Cir. 1975).

y Rule 42(b) provides in part:

A criminal contempt except as provided in subdivision (a) of this rule

shall be prosecuted on notice. The notice shall state the time and place

of hearing, allowing a reasonable time for the preparation of the

defense, and shall state the essential facts constituting the criminal

contempt charged and describe it as such. The notice shall be given

orally by the judge in open court in the presence of the defendant or,

on application of the United States attorney or of an attorney ap-

pointed by the court for that purpose, by an order to show cause or an

order of arrest. The defendant is entitled to a trial by jury in any case

in which an act of Congress so provides. . .

59a

and packing lists showing that Benson Truck Bodies had

ordered and received various repair parts for the 1400 suspen-

sion since June 1, 1981. In another affidavit, a sales manager

for TWM stated that he had visited two customers of Dura

who had ordered repair parts since the injunction was issued.

In a supplement to its motion for a contempt decree dated

March 3, 1982, TWM provided additional evidence that at

least one other dealer had ordered and received repair parts

and that Dura was advertising repair parts for sale at discount

prices.

In its reply to the motion, Dura denied that supplying the

repair parts was prohibited by the injunction. Dura also argued

that “all those units out in the field are now under an implied

license” because of the district court’s judgment and award of

an accounting. Dura asserted that the motion raised factual

issues which could not be “treated summarily on a motion for

contempt.” Dura cited as an example of such a substantial

issue the question of whether the parts alleged to have been

sold were non-staple articles of commerce.

Attached to the reply was the affidavit of William S. Locke,

president of Dura’s division that manufactured the 1400 sus-

pension. Locke stated his intention to comply in good faith

with the injunction and asserted that the sale of repair parts

was made pursuant to advice from Dura’s patent attorney,

James Van Santen. In a June 4, 1981 letter to Dura’s manage-

ment, which was also attached to the affidavit, Van Santen

outlined his views on Aro IJ and Aro IJ

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