Source: https://law.justia.com/cases/federal/appellate-courts/F2/767/853/40016/
Timestamp: 2020-04-01 09:26:13
Document Index: 676305029

Matched Legal Cases: ['§ 102', '§ 102', '§ 103', '§ 102', '§ 112', '§ 284', '§ 284', '§ 285', '§ 284', '§ 285']

King Instrument Corporation, Plaintiff-appellant/cross-appellee, v. Otari Corporation, Defendant-appellee/cross-appellant, 767 F.2d 853 (Fed. Cir. 1985) :: Justia
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King Instrument Corporation, Plaintiff-appellant/cross-appellee, v. Otari Corporation, Defendant-appellee/cross-appellant, 767 F.2d 853 (Fed. Cir. 1985)
U.S. Court of Appeals for the Federal Circuit - 767 F.2d 853 (Fed. Cir. 1985) June 26, 1985
King Instrument Corporation (King), the plaintiff below, charged Otari Corporation (Otari) with infringement of its U.S. Patent Nos. 3,637,153 ('153) issued January 25, 1972, and 3,737,358 ('358) issued June 5, 1973. King now appeals from final judgment by the United States District Court for the Northern District of California, following a bench trial, that held the '358 patent invalid because the invention claimed was found to be "on sale" under 35 U.S.C. § 102(b). We affirm.
After considering over 2,000 pages of trial transcripts, 400 exhibits and the credibility of more than 25 witnesses, the district court entered final judgment. The court concluded that the invention claimed in the '153 patent was neither anticipated under 35 U.S.C. § 102(a), nor would have been obvious under 35 U.S.C. § 103. The court found that Otari machines DP-6750, DP-2700, VL-500 and VL-600 directly infringe claims 2, 4, 5, 6, 8, 9, 10, 11, 12, 14 and 16, and Otari machines VL-100, VL-110, and VTW-120 directly infringe claims 2, 4, 5, 6, 8, 9, 10, 11, 12 and 14 of the '153 patent. The court then concluded that King was entitled to its lost profits with respect to the sale by Otari of these machines. The court also awarded damages for lost profits from the sale of "parts" by Otari. Pre-judgment interest was awarded, but enhanced damages for willful infringement and an award of attorney fees were denied.
After considering all the relevant prior art, the district court found that the invention claimed in the '153 patent was not anticipated by the prior art, and also ruled that the differences between the prior art and the claimed subject matter as a whole would not have been obvious to one of ordinary skill in the tape winding art in 1969.2 Otari argues that the district court committed reversible error by not making detailed findings of fact under the guidelines set forth in Graham v. John Deere Co., 383 U.S. 1, 86 S. Ct. 684, 15 L. Ed. 2d 545, 148 USPQ 459 (1966), and by failing to recognize the Plastaras patent as the most relevant prior art.
In a Sec. 103 obviousness analysis, Graham requires that the trier assess certain underlying facts: (1) the scope and content of the prior art, (2) the level of ordinary skill in the art, (3) the differences between the claimed invention and the prior art, and (4) the so-called "secondary considerations." See Atlas Powder Co. v. E.I. Du Pont De Nemours & Co., 750 F.2d 1569, 1574, 224 UPSQ 409, 412 (Fed. Cir. 1984). Otari cites Jones v. Hardy, 727 F.2d 1524, 220 USPQ 1021 (Fed. Cir. 1984) as showing that the district court improperly failed to make express findings relating to these factors. In Jones, however, this court reversed the trial court's conclusion of obviousness because the record contained no specific factual findings, no mention of any patented prior art, and was replete with legal error. By comparison, not only did the district court conclude that the '153 patent was nonobvious, but none of the Jones "parade of horrors" exists in this case.
In contrast to the minute cassette tape used in a '153 patent machine, the film used in the machine described in Plastaras has a width of 4-6 inches. Moreover, the more cumbersome "Plastaras film" is self-supporting and has perforations along the edges to enable the operator to secure the film by using pins. Otari argues that King's expert Zimmerman testified that he would include methods of splicing photographic film as within the relevant art, and therefore Plastaras is as relevant as any other prior art. But Zimmerman clarified his statement by adding that only photographic film in narrow tape form, not (for example) a 3 by 5 negative, should be considered relevant art. Also, there was testimony that Plastaras is directed to the printing industry and not to the high speed loading of magnetic tape into cassettes. To operate the Plastaras machine, textual film is passed across and clamped to two tables. Careful manual adjustments are required at both the cutting and welding stations. Furthermore, Plastaras taught shifting the two (correction and original) films to four different locations. In the light of all this evidence, one can reasonably conclude that the reference is not within the field of this inventor's endeavor, and was not directly pertinent to the particular problem with which the inventor was involved. Accord Union Carbide Corp. v. American Can Co., 724 F.2d 1567, 1572, 220 USPQ 584, 588 (Fed. Cir. 1984). Thus, the district court's finding that the Plastaras patent was not as relevant as the Ooms article and the Philips machine was not clearly erroneous.
Otari also argues that it would have been obvious to one of ordinary skill in the art to combine the Ooms article and Philips machine with the Plastaras patent. Otari has pointed to no testimony in the record by, or related to, one of ordinary skill in the art, nor were we able to find any evidence which suggests the desirability of making such a combination. See Fromson v. Advance Offset Plate, Inc., 755 F.2d 1549, 1556, 225 USPQ 26, 31 (Fed. Cir. 1985) (nothing of record plainly indicated that it would have been obvious to combine the prior art). Thus, we do not believe that the district court failed to weigh properly the scope and content of the prior art, and the differences between the prior art and the claimed invention as a whole.
The '358 patent application was filed on May 27, 1971. A tape loading device was offered for sale in a written price quotation on May 22, 1970 to Morningstar. The offer for two "King Turbo-matic 300-EC" cassette loaders contained a description of the specifications for the leader tape, the required power supply, a discount for two of Morningstar's old tape loaders, and a price quotation for a spare automatic splicer. This offer resulted in an acceptance confirmed by a purchase order dated June 8, 1970. The two loaders arrived at Morningstar on June 17, 1970. The district court found that, since the offer embodied the '358 claimed invention which had been reduced to practice by April 27, 1970, the '358 patent was invalid under 35 U.S.C. § 102(b).4
King argues that the district court failed to apply the three-part test enunciated in Timely Products Corp. v. Arron, 523 F.2d 288, 187 USPQ 257 (2d Cir. 1975), which it says this court adopted as the standard for determining "on sale" under Sec. 102(b) in Barmag Barmer Maschinenfabrik v. Murata Machinery, Ltd., 731 F.2d 831, 221 USPQ 561 (Fed. Cir. 1984). This three-part test requires that: (1) the complete invention claimed must have been embodied in or obvious in view of the thing offered for sale; (2) the invention must have been tested sufficiently to verify that it is operable and commercially marketable; and (3) the sale must be primarily for profit rather than for experimental purposes. 523 F.2d at 302, 187 USPQ at 267-268. However, this court expressly held in Barmag that Timely Products is not adopted for all cases, and a less stringent standard might be appropriate in some circumstances where the underlying statutory policies might otherwise be frustrated. Accord Western Marine Electronics v. Furano Electric Co., 764 F.2d 840, ---- (Fed. Cir. 1985).
These underlying policies include: (1) discouraging removal of inventions from the public domain which the public justifiably comes to believe are freely available; (2) favoring prompt and widespread disclosure of inventions; (3) giving the inventor a reasonable amount of time following the sales activity to determine the value of a patent, see In re Caveney, 761 F.2d 671, 676 (Fed. Cir. 1985), and (4) prohibiting an extension of the period for exploiting the invention. Consistent with these policies, the district court properly relied on two factors as evidence of "on sale": (1) a sale or offer of sale of the invention, and (2) an existing reduction to practice of the invention by the time of the offer. See generally Barmag, supra. An offer to sell is sufficient under the policies animating the statute, which proscribes not a sale, but a placing "on sale." D.L. Auld Co. v. Chroma Graphics Corp., 714 F.2d 1144, 1147, 219 USPQ 13, 18 (Fed. Cir. 1984). Although it argues in the context of Timely Products, King's position is essentially that there was never an offer of sale before the critical date, nor was the '358 invention reduced to practice before that date.
Even if there was an offer, King argues that the '358 invention was not reduced to practice before the critical date. The district court's conclusion that the invention was reduced to practice was based on the following findings of fact: (1) James King, Sr. testified that he had horizontal shift blocks on April 27, 1970; (2) it was the custom at King to make sales of machines prior to the completion of drawings; (3) the assembly drawing of the '358 horizontal shift block device was prepared on May 16, 1970; and (4) it was the custom and practice of King to have assembly drawings prepared from an existing assembled machine. King responds by citing McDonnell Douglas Corp. v. United States, 670 F.2d 156, 214 USPQ 857 (Ct. Cl. 1982), for the proposition that the mere existence of assembly drawings does not by itself establish a reduction to practice, and that reduction to practice usually requires at least a testing of the invention. We do not disagree. However, in McDonnell, all that the Court of Claims found was that the invention was not reduced to practice by computer simulation because physical tests revealed possible non-operability under certain conditions. That is not the situation in the instant case, and the district court found an actual reduction to practice.
Our predecessor court has recognized that the invention must have been "sufficiently tested to demonstrate that it will work for its intended purpose." General Electric Co. v. United States, 654 F.2d 55, 60, n. 8, 228 Ct. Cl. 192, 201, n. 8, 211 USPQ 867, 872, n. 8 (1981). But, in order for there to be a reduction to practice, there is no requirement that the invention when tested be in a commercially satisfactory stage of development. Barmag, supra, 731 F.2d at 838, 221 USPQ at 567. Moreover, the district court might have considered that " [s]ome devices are so simple and their purpose and efficacy so obvious that their complete construction is sufficient to demonstrate workability." Eastern Rotorcraft Corp. v. United States, 384 F.2d 429, 431, 181 Ct. Cl. 299, 305, 155 USPQ 729, 730 (1967). Here, testimony and other evidence supports the district court's finding that King prepared assembly drawings from a completed and workable device. Accordingly, the district court did not err in inferring that the '358 invention embodied in an existing machine was sufficiently tested to constitute a reduction to practice. Rather, we are persuaded that the district court's conclusion that the '358 patent is invalid as being "on sale" under Sec. 102(b) is supported by clear and convincing evidence.6 III.
Construction of the scope of these claims must be made in the context of the last paragraph of 35 U.S.C. § 112, which states:
This court has recently reiterated that this section expressly calls for claim construction covering equivalents of the described embodiments. Palumbo v. Don-Joy Co., 762 F.2d 969, 974 (Fed. Cir. 1985); see also D.M.I., Inc. v. Deere & Co., 755 F.2d 1570, 225 USPQ 236 (Fed. Cir. 1985). The scope of such equivalents is a question of fact, and once the accused device is found to be an equivalent under Sec. 112 then literal infringement has properly been established. See Palumbo, supra. As an aid for ascertaining the breadth of equivalents under Sec. 112, a number of factors may be considered: the patent specification, the prosecution history of the patent, other claims in the patent, and expert testimony. Palumbo, supra, at 974. In looking to the first three factors, Otari has not cited any reason or basis in the record for limiting the '153 means claims to the swing arm embodiment.
The fourth important factor in the determination of these equivalents is the testimony of one skilled in the art. In the current case, there is significant evidence drawn from expert testimony which supports the conclusion that the Otari devices are Sec. 112 equivalents of the described embodiment. This includes uncontested testimony based on observations made from video tapes of the Otari machines by Mr. Zimmerman who testified that claims 2, 4-6, 8-12, and 14-16 are directly infringed by the Otari machines. We believe that this testimony is sufficient for the district court to have concluded that Otari's machines are Sec. 112 equivalents, and therefore literally infringe the '153 patent. Otari has failed to point out why Zimmerman's conclusions were wrong, has failed to describe its machines to this court7 , and has failed to meet its ultimate burden of convincing this court that the district court's finding of infringement was clearly erroneous.
The district court has discretion in choosing the methodology for assessing and computing damages. The limitation on the court's discretion is that the award must be "adequate to compensate for the infringement," and cannot be "less than a reasonable royalty." 35 U.S.C. § 284; Seattle Box Co. v. Industrial Crating and Packing, Inc., 756 F.2d 1574, 1581, 225 USPQ 357, 363 (Fed. Cir. 1985). It is Otari's burden, as appellant, to show that the amount or method of assessing damages constituted an abuse of discretion by the district court.
In general, the determination of a damage award is not an exact science. The trial court must best approximate the amount to which the patent owner is entitled. Paper Converting Machine Co. v. Magna-Graphics Corp., 745 F.2d 11, 22, 223 USPQ 591, 599 (Fed. Cir. 1984).8 When a patent owner would have made the sale of a product "but for" the infringement, the award based on his lost profits is appropriate. Paper Converting Machine Co., 745 F.2d at 21, 223 USPQ at 598; Bio-Rad Laboratories, Inc. v. Nicolet Instrument Corp., 739 F.2d 604, 616, 222 USPQ 654, 663 (Fed. Cir.), cert. denied, --- U.S. ----, 105 S. Ct. 516, 83 L. Ed. 2d 405 (1984). Generally, as the parties agree, a lost profits award requires (1) a showing that the patent owner would have made the sale but for the infringement, i.e., causation existed, and (2) proper evidence of the computation on the loss of profits. Id.
The patent owner's burden of proof is not absolute, but one of reasonable probability. This proposition is exemplified in the recent opinion of this court in Kori Corp. v. Wilco Marsh Buggies and Draglines, Inc., 761 F.2d 649 (Fed. Cir. 1985). In Kori, we held that the district court's use of an infringer's profit margin for comparison purposes in determining the reasonableness of a patent owner's estimate of lost profits did not constitute an abuse of discretion. The bottom line is that the trial court must be afforded reasonable flexibility in awarding lost profit damages.9
Otari also assigns error in the district court's award of damages based on spare parts. We hold that the evidence found in the present record is insufficient to support the district court's conclusory finding that " [t]he lost profits from the sale of parts incurred by plaintiff is $438,810."
The "entire market value" rule allows for the recovery of damages based on the value of an entire apparatus including non-patented parts, even though only one of the features in the apparatus is patented. Paper Converting Machine Co. v. Magna Graphics Corp., 745 F.2d 11, 22, 223 UPSQ 591, 599 (Fed. Cir. 1984). This court has recognized that under this 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." Kori, supra, at 656 (citing Leesona Corp. v. United States, 599 F.2d 958, 974, 202 USPQ 424, 439 (Ct. Cl.), cert. denied, 444 U.S. 991, 100 S. Ct. 522, 62 L. Ed. 2d 420 (1979)). The controlling touchstone in determining whether to include the non-patented spare part in a damage award is whether the patentee can normally anticipate the sale of the non-patented component together with the sale of the patented components. Kori, supra, at 656; Paper Converting, 745 F.2d at 23, 223 USPQ at 599; and Tektronix, Inc. v. United States, 552 F.2d 343, 351, 193 USPQ 385, 393 (Ct. Cl. 1977).
As support for the district court's finding, King asserts that its spare parts are not consumable supplies for which no recovery is possible, but are parts which it normally sells with the patented swing arm machine. Such a simplistic outlook fails to perceive the underlying significance of the entire market value rule, which was accurately applied by one of our predecessor courts in Leesona Corp. v. United States, supra. In defining those spare parts for which a patent owner may recover, the Court of Claims recognized that parts for such items that experience had shown might be destroyed during the normal use of a device should be distinguished from parts which derive their existence and value from the patent. 559 F.2d at 974, 202 USPQ at 439. "(A)fter a patentee has collected from ... a direct infringer damages sufficient to put him in the position he would have occupied had there been no infringement, he cannot thereafter collect actual damages from a person liable only for contributing [i.e., by the sale of spare parts] to the same infringement." Aro Mfg. Co. v. Convertible Top Co., 377 U.S. 476, 512, 84 S. Ct. 1526, 1545, 12 L. Ed. 2d 457, 141 USPQ 681, 696 (1964) (Aro II) . The only recoverable position the patent owner would have occupied had there been no infringement is one where he normally would have anticipated the sale of the spare parts. In other words, the question is whether King would have made the sale of spare parts but for Otari's infringement. An affirmative answer to this question is illustrated in Leesona where a patented battery system envisioned that many parts (i.e., anodes) would be necessary to keep the battery in operation. During the normal "life cycle" of a battery, the 22 anodes for each battery would be replaced approximately 50 times. The battery's very uniqueness was found in the replacement of the anodes rather than in the reliance on "a cumbersome recharging device." 599 F.2d at 975, 202 USPQ at 440.
King appeals from the district court's determination that it is not entitled to either increased damages under 35 U.S.C. § 284 or an award of attorney fees as permitted by 35 U.S.C. § 285. In support of its argument that the district court erred, King asserts that Otari set out on a willful and deliberate path of infringing the '153 patent. An award of increased damages, however, is within the discretion of the trial court, see 35 U.S.C. § 284,12 and will not be overturned absent a clear showing of an abuse of discretion.
King also cites Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 219 USPQ 569 (Fed. Cir. 1983), for the proposition that Otari had an affirmative duty to seek and obtain legal advice from counsel before the initiation of possible infringing activities. However, as we stated in that case, the district court should always look at the totality of the circumstances. This includes whether Otari secured legal advice and whether it reasonably felt that its activities fell within its own claims which may be patentably distinct. While irrelevant in an infringement analysis, these factors can be considered by the trier in determining Otari's intent in connection with a decision on willfulness vel non.
Events and circumstances surrounding a license negotiation are merely an element of willfulness for the district court to consider. Negotiations might even support an infringer's good faith if the infringer could show that it desired a license agreement as an alternative to unaffordable or expensive litigation costs. See Gould v. General Photonics Corp., 534 F. Supp. 399, 403, 215 USPQ 116, 119 (N.D. Cal. 1982). King attempts to distinguish Gould by pointing out that the parties in that case negotiated for a license just prior to suit, while in the current case negotiations were some five years before Otari's active sales of infringing devices. We find, however, that the hiatus which King claims as further evidence of willfulness simply represents one factor which the district court could and most probably did weigh in its determination.
Based on the above evidence of "flagrant disregard of the ['153] patent" and Otari's dilatory and misleading discovery practices, King also asks us to reverse the district court's denial of attorney fees. Like an award of increased damages, an award of attorney fees under 35 U.S.C. § 285 is discretionary, and such discretion should only be exercised upon a finding of exceptional circumstances. See Stevenson v. Sears, Roebuck & Co., 713 F.2d 705, 712-13, 218 USPQ 969, 975 (Fed. Cir. 1983). For the same reasons set forth above and because a motion for sanctions relating to discovery practices is still awaiting resolution in the district court, we find that the district court did not abuse its discretion, and therefore affirm the denial of King's attorney fees.V.
While there was no specific finding of nexus between the evidence of commercial success and the claimed invention, see Simmons Fastener Corp. v. Illinois Tool Works, Inc., 739 F.2d 1573, 1575, 222 USPQ 744, 746 (Fed. Cir. 1984), we may properly assume that this evidence entered into the district court's consideration under the correct standard
Otari cites Central Soya v. George Hormel & Co., 723 F.2d 1573, 220 USPQ 490 (Fed. Cir. 1983) for the proposition that this court has adopted the particular standard for lost profits set forth in Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 197 USPQ 726 (6th Cir. 1978). The four part test in Panduit has been approved by this court as one method of calculating lost profits. See Gyromat Corp. v. Champion Spark Plug Co., 735 F.2d 549, 552, 222 USPQ 4, 6 (Fed. Cir. 1984); see also Bio-Rad, supra, 739 F.2d at 616 n., 222 USPQ at 663 n. These cases recognize that Panduit is, however, not the exclusive test
In relevant part, Sec. 284 states that " [t]he court may increase the damages up to three times the amount found or assessed." (Emphasis added.)