Opinion ID: 697651
Heading Depth: 2
Heading Rank: 3

Heading: THE INJURY TO THE ISOs

Text: 258 Twenty-six of the plaintiffs are small businesses or individuals who were directly injured by the infringement. Some of these plaintiffs had previously brought a separate action against Kelley, the district court consolidating these actions. The district court's award of damages to these plaintiffs has not been shown to be clearly erroneous, and I would affirm it.
259 Adam Smith observed that people work most effectively when they have a personal stake in the fruits of their labor. That is apparently how Rite-Hite structured its business. The ISOs were not employees, but independent entities. They were responsible for 70% of Rite-Hite's sales. They were not distributors, and most of them were not resellers. They were part of the make/sell activity that was conducted before, not after, the first sale. The issue of their entitlement to the damages that they proved requires objective evaluation, not summary pigeonholing. 260 Indeed, the ISOs' portion of the injury caused by the infringement is recoverable even on the majority's view of the position of the ISOs in the original ISO contract, majority op. at 1552, which granted the ISOs the right to solicit sales in the [exclusive] Territory. The majority states that this commercial relationship was unchanged in any substantive way by the new agreement whereby Rite-Hite designated the ISOs as exclusive sales licensees. It is not necessary to decide the nuances of this contractual relationship, for the losses experienced at the sales level are compensable. If the ISOs were simply sales agents, as Kelley argues, then Rite-Hite is the seller of the goods. If these plaintiffs do not have standing, as the majority states, because the lost sales were made by Rite-Hite, not the ISOs, then Rite-Hite is entitled to these damages. Thus, if compensation is not owed to the ISOs, it is owed to Rite-Hite. 261 Witnesses at the damages trial explained that the profits from Rite-Hite's manufacture and sale of truck restraints were calculated at both the manufacturing level and the sales level. Rite-Hite made about 30% of its sales through its own sales organizations, and 70% of its sales through the ISOs, which were assigned geographically exclusive territories. The district court awarded damages in accordance with which plaintiffs bore the losses, at the manufacturing and the sales levels. The majority apparently recognizes the recovery by Rite-Hite for the sales it made through its own selling arms, but not for those obtained by the ISOs. 262 The majority may have misunderstood the commercial structure, for it continues the loose reference to Rite-Hite's manufacturing-level price as a wholesale price, although the lost sales to the customer--the price at which Kelley and Rite-Hite competed--was not at this manufacturing level of $1,000-1,500, but in the $2,500-3,000 range for the ADL-100. This price included both the manufacturing-level costs and profit and the sales-level costs and profit. Indeed, the district court drew this distinction, although not for the purpose of excluding recovery of sales-level losses, but for the purpose of distinguishing the profits lost at each level. Analyzing the evidence, the district court limited the recovery at the sales level to one third of that claimed, disallowing claims for individual salesmen's commissions. 263 The trial court has substantial discretion in determining damages. In State Industries, Inc. v. Mor-Flo Industries, Inc., 883 F.2d 1573, 12 USPQ2d 1026 (Fed.Cir.1989), cert. denied, 493 U.S. 1022, 110 S.Ct. 725, 107 L.Ed.2d 744 (1990), this court recognized that 264 the only limit on [the district court's] discretion in selecting a remedy is that it be adequate to compensate for the damages suffered as a result of the infringement. 265 Id. at 1577, 12 USPQ2d at 1029. This deference that the judicial process accords to the trial court's assessment of damages recognizes the fact-dependency of just compensation. In Perkins v. Standard Oil Co., 395 U.S. 642, 89 S.Ct. 1871, 23 L.Ed.2d 599 (1969), the Court looked at the chain of causation and observed that Perkins was no mere innocent bystander; he was the principal victim of the price discrimination. Id. at 649-50, 89 S.Ct. at 1874-75. So too were the ISOs a principal victim of the infringement, for they and Rite-Hite sold the goods whose sales were lost due to the infringement.
266 The purpose of legal remedy is the recovery of damages by those injured by the tortious acts of another, provided of course that policy-based criteria are met. See, e.g., Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977) (indirect purchasers generally do not have antitrust standing because of the risk of double recovery or the difficulty in apportioning damages). The ISOs and Rite-Hite are not subject to similar disabilities. Analogously to the Seventh Circuit's explanation in Nelson v. Monroe Regional Medical Center, 925 F.2d 1555, 1563 (7th Cir.), cert. dismissed, 502 U.S. 903, 112 S.Ct. 285, 116 L.Ed.2d 236 (1991), that standing in antitrust cases follows the causation requirement of common law torts, standing in patent infringement cases follows the same extensive jurisprudence. 267 Kelley argued at trial, as it does here, that the ISOs can not recover damages because they were not exclusive patent licensees. The district court thoroughly explored the relationships between Rite-Hite and the ISOs. The ISOs were sales agents with certain exclusive rights and exclusive territories, with some exceptions for direct sales by Rite-Hite. Since they are not suing independently of the patentee, there is no relevance to those cases which hold that a non-exclusive licensee can not sue in its own name. When the patentee is joined as a party, as Rite-Hite is here, and the licensee has an exclusive right to make, use, or sell, the licensee has standing to recover for its own injury. In Western Elec. Co. v. Pacent Reproducer Corp., 42 F.2d 116, 119, 5 USPQ 105, 106 (2d Cir.), cert. denied, 282 U.S. 873, 51 S.Ct. 78, 75 L.Ed. 771 (1930), the court explained that a less than fully exclusive licensee must join the patentee in any suit for infringement, while a fully exclusive licensee, like an assignee, can sue in its own name (citing Waterman v. Mackenzie, 138 U.S. 252, 256, 11 S.Ct. 334, 335, 34 L.Ed. 923 (1891)). In this case the patentee is a party to the suit, thus removing the risk of multiple suits, of which Kelley makes much. In Weinar v. Rollform, Inc., 744 F.2d 797, 807, 223 USPQ 369, 374-75 (Fed.Cir.1984) this court stated that two parties sharing the property rights represented by a patent may have their respective property rights protected by injunction and each, when properly joined in a suit, may be entitled to damages. In Innis, Speiden & Co. v. Food Machinery Corp., 2 F.R.D. 261, 265, 53 USPQ 330, 334 (D.Del.1942) the court explained that when a licensee is granted an exclusive right to some part of the patent grant, in that case the geographically exclusive right to sell the patented product in Florida, the licensee must be permitted to exclude others from trespassing upon his right, lest he be in the position of one who has an exclusive easement across Blackacre but could not enjoin trespassers who persisted in impairing his easement. Id. at 264 n. 2, 53 USPQ at 333 n. 2. 268 Thus if the ISOs are viewed as sales agents instead of licensees, either their sales exclusivity suffices to permit them to join with Rite-Hite in this suit, or Rite-Hite as principal can recover on their behalf.
269 The jurisprudence of tort damages illustrates myriad relationships between the wrongdoer and the injured party, from which there have evolved general criteria that apply damages law and policy. Precedent deals with the criteria of directness of the injury, foreseeability, and duty, derived from policy considerations whereby the public interest in remedying wrong is balanced with the public interest in placing reasonable limits on liability. Applying these rules, the ISOs were a direct and foreseeable victim of the infringement. Their recovery is not barred by statute or policy. Their entitlement is a question of fact and proof, applying the law and policy of damages. 270 Much of the evidence at trial, of head-to-head competitive bids against Kelley, was presented by the ISOs: 271 Each of plaintiffs' claim files contains several documents pertaining to a single transaction or series of transactions with a single customer. The files include deposition testimony from a member of a Rite-Hite sales organization regarding a sale that Rite-Hite claims to have lost on account of an infringing Kelley sale. ... According to plaintiffs' expert witness, accountant Ronald Beckman, every claim file regarding transactions in which plaintiffs seek lost profit damages contains testimony that: (1) prior to the Kelley sale, Rite-Hite salespersons had solicited the Kelley customer for Rite-Hite vehicle restraints, and (2) vehicle restraints from other manufacturers had not been bid or had been ruled out by the customer because of perceived product problems.... PDTX-143 specifically itemizes 169 cases in which plaintiffs' salespersons testified that they had initially convinced the customer to purchase a restraint before the customer ultimately purchased from Kelley. 272 Rite-Hite v. Kelley, 774 F.Supp. at 1525-26, 21 USPQ2d at 1809 (emphases added). The evidence was extensive and uncontradicted, that the injury to the ISO plaintiffs was directly and foreseeably caused by the infringement. The legal insulation of a wrongdoer from responsibility for its acts is rare in the law, requiring sound basis in public policy. In The New Property, 73 Yale L.J. 733 (1964), Professor Reich discusses the evolution of protection of property rights as characteristic of a just society. 273 The provision of adequate remedy for patent infringement is fundamental to a viable patent law. The district court's damages rulings are not in clear error, and I would sustain them.