However, as Intex argues, Plaintiffs’ WACC includes a return that compensates Plaintiffs
for a risk Plaintiffs beared. Plaintiffs, though, did not undertake a risk in this regard. Plaintiffs
will be compensated for the loss of its money through damages, and the interest rate will further
compensate Plaintiffs for the time value of those damages. Accordingly, using Plaintiffs’ WACC
as the prejudgment interest rate is not appropriate.

Intex asserts that the five-year Treasury Bill rate is the appropriate rate. Intex cites a
number of cases in support of using this rate, but those cases are all distinguishable. Moreover,
the Treasury Bill rate has been criticized as being “‘too low, because there is no default risk with
Treasury bills.” Gorenstein Enters., Inc. v. Quality Care-USA, 874 F.2d 431, 437 (7th Cir.
1989). As Plaintiffs note, they did not make a risk-free loan to Intex; but, rather, Plaintiffs had to
engage in litigation to recover damages. Therefore, the Treasury Bill rate would not adequately
compensate Plaintiffs.

The remaining proposed rate, the prime interest rate, is acceptable to both parties as an
alternative rate to calculate prejudgment interest. Using this rate, compounded annually,
Plaintiffs are entitled to $381,786.00 in prejudgment interest through July 31, 2004, and $504.39
until the entry of a final judgment.

With regard to Plaintiffs’ Motion for Entry of a Permanent Injunction, Intex does not
dispute that the entry of an injunction is proper. However, Intex disputes whether: (1) a party
that was not involved in this action may be enjoined; (2) product numbers should be used to
identify which products are subject to the injunction; and (3) the phrase “merely colorably

different” is properly included in the injunction.


newly-designed products are not subject to an accounting. Plaintiffs, though, argue that all
products which include the infringing component are subject to the accounting, regardless of
whether or not a product used a new design. However, it is not proper to determine in the instant
motion whether Intex is liable for damages relating to sales of newly-designed products made
from January 1, 2004, through the entry of an injunction. Therefore, Intex should provide an
accounting of all products using the infringing component; when Intex provides the accounting,
it should specifically distinguish between sales of products using the older design and sales of
products using the new design.

The parties also dispute what interest rate should be used in the accounting. Plaintiff
seeks to use its Weighted Average Cost of Capital (“WACC”), or, in the alternative, the prime
interest rate. Intex seeks to use the five-year United States Treasury Bill rate or, at the very least,
the prime rate. Plaintiffs’ WACC is 13.00 %; the prime rate varies between 9.50 % and
4.12 % during the relevant time period; and the Treasury Bill rate varies between 5.55 % and
2.97 % during the relevant time period. Both parties agree that regardless of the rate chosen, that
rate should be compounded annually.

Prejudgment interest is generally used to adequately compensate a plaintiff for the lost
use of its royalties. See 35 U.S.C. § 284; Laitram Corp. v. NEC Corp., 115 F.3d 947, 955 (Fed.
Cir. 1997), Plaintiffs’ WACC represents the cost of obtaining both debt and equity financing for
projects it undertook in the absence of compensation from Intex. Plaintiffs thus contend this rate
should be used because, absent the infringement, Plaintiffs would have been able to use the

money it received as a royalty to finance projects instead of obtaining financing.



As to the first issue, whether a party that was not involved in this action may be enjoined,
Intex argues the proposed injunction is overly broad because it enjoins persons, firms, and
corporations in privity with Intex, Wal-Mart, and Quality Trading. According to Intex, this
language could mean that customers would also be enjoined. Plaintiffs argue that the language at
issue closely tracks Federal Rule of Civil Procedure 65(d) and is thus proper.

Federal Rule of Civil Procedure 65(d) provides, in relevant part, that “those persons in
active concert or participation with [those enjoined] who receive actual notice of the [injunction]
order by personal service or otherwise” may be enjoined from taking certain actions. Plaintiffs
proposed language states that “‘all persons, firms, and corporations in active concert,
participation, or in privity with Intex Recreation Corp., Quality Trading, Inc., or Wal-Mart
Stores, Inc.” are enjoined from taking certain actions. Plaintiffs’ proposed language does not
impermissibly broaden the scope of the injunction to non-parties as long as those persons, firms,
and corporations receive actual notice of the injunction by personal service or otherwise.
Therefore, Plaintiffs’ proposed language indicating actual notice must be provided is within the
requirements of Rule 65(d).

The parties further dispute whether product numbers which were admitted during trial
should be used to identify which products are subject to the injunction. Intex claims that they
have redesigned products to prevent infringement of Plaintiffs’ patents, but they retained old
product number designations because those numbers relate to a particular style instead of the
product’s configuration. Thus, according to Intex, the injunction would effect non-infringing

products carrying the same product number.


Minute Order Form (06/97)

2
‘ United States District Court, Northern District of Illinois
Name of Assigned Judge John W. Darrah Sitting Judge if Other
or Magistrate Judge . than Assigned Judge
CASE NUMBER 02 C 2590 DATE 9/15/2004
CASE Aero Products Intl. Vs. Intex Recreation Corp.
TITLE
[In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

MOTION: of the motion being presented.)

DOCKET ENTRY:

(yD o Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

(3) o Answer brief to motion due . Reply to answer brief due :

{4) Oo Ruling/Hearing on set for at

(5) im) Status hearing[held/continued to] [set for/re-set for) on set for at

(()) a Pretrial conference[held/continued to] [set for/re-set for] on set for at .

(72) Qo Trial[set for/re-set for] on at

(8) gq [Bench/Jury trial] [Hearing] held/continued to at

(9) Q This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

COFRCP4(m) OLocal Rule 41.1 C)FRCP41(a)(1) [1 FRCP41(a)(2).

(10) MH [Otherdocketentry] For the reasons stated in the attached memorandum opinion and order, the use
of the phrase “merely colorably different” is properly included in the injunction. Enter Memorandum
Opinion and Order.

ay @ [For further detail see order attached to the original minute order.]

No notices required, advised in open court,

No notices required.

Notices mailed by judge's staff.
Notified counsel by telephone.

Docketing to mail notices,

Mail AO 450 form. tino SDE ce
Copy to judge/magistrate judge.
courtroom L | € Kd S | a8 ‘ote date maited notice
MF deputy’s . nr
initial ie
TM“ Lie Date/time received in ; ;
central Clerk's Office iling deputy initials



However, Plaintiffs correctly argue that using product numbers would enable efficient
policing of the marketplace to ensure Intex complies with the injunction. Moreover, the parties
used product numbers throughout the litigation to identify the infringing products. Intex, with
full knowledge of these facts, did not change the product numbers when it purportedly
redesigned the infringing product to prevent this situation. Accordingly, product numbers are
appropriate to identify the products subject to the injunction and will be included in the
injunction order. It is noted that the injunction order will also identify the product subject to the
injunction by patent and claim number.

Finally, the parties dispute whether the phrase “merely colorably different” is properly
included in the injunction. Intex argues that this phrase is overly vague and could include
designs not adjudicated by the Court. Intex also asserts that the phrase will ensure Plaintiffs may
use summary contempt proceedings to enforce the injunction, without any findings of whether
substantial infringement issues exist. However, these concerns are more properly raised during
enforcement proceedings regarding the injunction. Therefore, the use of the phrase “merely

colorably different” is properly included in the injunction.

Dated; & Zéor

Unigéd States District Judge


UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

AERO PRODUCTS INTERNATIONAL, INC.,
a Florida corporation; and
ROBERT B. CHAFFEE, an individual,

Plaintiffs,

v. No: 02 C 2590

a California corporation; DOGKETED

QUALITY TRADING, INC,
SHHP 11 6 20D

a California corporation; and
WAL-MART STORES, INC.,

)
)
)
)
)
)
)
)
INTEX RECREATION CORPORATION, ) Judge John W. Darrah
)
)
)
)
a Delaware corporation, )
)
)

Defendants.

MEMORANDUM OPINION AND ORDER

The Plaintiffs, Aero Products International, Inc. (“Aero”) and Robert B. Chaffee, filed
suit against the Defendants, Intex Recreation Corporation (“Intex”); Quality Trading, Inc.; and
Wal-Mart Stores, Inc. Plaintiffs alleged Defendants infringed U.S. Patent Nos. 5,367,726 (“the
‘726 patent”) and 4,977,633 (“the ‘633 patent”). At trial, a jury found in favor of Plaintiffs and
against Defendants. Presently before the Court are two motions: (1) Plaintiffs’ Motion for an
Accounting and Prejudgment Interest; and (2) Plaintiffs’ Motion for Entry of a Permanent

Injunction.

ag



ANALYSIS

With regard to Plaintiffs’ Motion for an Accounting and Prejudgment Interest, Intex does
not dispute that Plaintiffs are entitled to: (1) damages calculated by an accounting of infringing
sales made from January 1, 2004, through the entry of an injunction; and (2) to an award of
prejudgment interest that is compounded at an annual rate. However, the parties dispute:

(1) whether Plaintiffs can obtain an accounting for sales of infringing Intex products, while also
seeking to enjoin resales of those products; (2) what products are subject to an accounting; and
(3) what interest rate should be used in determining the prejudgment interest.

The first issue, whether Plaintiffs can obtain an accounting for sales of infringing Intex
products, while also seeking to enjoin resales of those products, relates to both motions presented
by Plaintiffs. Plaintiffs concede that the injunction cannot “preclude the resale of infringing
products for which Intex has already paid damages” and suggest this statement can be added to
the injunction. (Pls.’ Reply for an Accounting, at 1). However, Plaintiffs’ proposed language
could also be interpreted as enjoining the resale of infringing products which are also subject to
the accounting, as Intex has not “already paid damages” for these products. Thus, Plaintiffs
could still obtain a double recovery of damages, through an accounting, and an injunction of the
products subject to the accounting. See Amstar Corp. v. Envirotech Corp., 823 F.2d 1538, 1549
(Fed. Cir. 1987). Accordingly, any injunction entered will not preclude the resale of infringing
products for which Intex has already paid damages, as well as infringing products which are
disclosed in an accounting to determine additional damages.

Next, the parties dispute what products are subject to an accounting. Intex, in a footnote,

claims that the design of the products at issue changed beginning in January, 2004; thus, these