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

Heading: Damages on the Dock Levelers

Text: 34 Based on the entire market value rule, the district court awarded lost profits on 1,692 dock levelers that it found Rite-Hite would have sold with the ADL-100 and MDL-55 restraints. Kelley argues that this award must be set aside because Rite-Hite failed to establish that the dock levelers were eligible to be included in the damage computation under the entire market value rule. We agree. 35 When a patentee seeks damages on unpatented components sold with a patented apparatus, courts have applied a formulation known as the entire market value rule to determine whether such components should be included in the damage computation, whether for reasonable royalty purposes, 9 see Leesona Corp. v. United States, 599 F.2d 958, 974, 220 Ct.Cl. 234, 202 USPQ 424, 439, cert. denied, 444 U.S. 991, 100 S.Ct. 522, 62 L.Ed.2d 420 (1979), or for lost profits purposes, see Paper Converting Machine Co. v. Magna-Graphics Corp., 745 F.2d 11, 23, 223 USPQ 591, 599 (Fed.Cir.1984). Early cases invoking the entire market value rule required that for a patentee owning an improvement patent to recover damages calculated on sales of a larger machine incorporating that improvement, the patentee was required to show that the entire value of the whole machine, as a marketable article, was properly and legally attributable to the patented feature. See Garretson v. Clark, 111 U.S. 120, 121, 4 S.Ct. 291, 291-92, 28 L.Ed. 371 (1884); Westinghouse Elec. & Mfg. Co. v. Wagner Elec. & Mfg. Co., 225 U.S. 604, 615, 32 S.Ct. 691, 694-95, 56 L.Ed. 1222 (1912) (same). Subsequently, our predecessor court held that damages for component parts used with a patented apparatus were recoverable under the entire market value rule if the patented apparatus was of such paramount importance that it substantially created the value of the component parts. Marconi Wireless Telegraph Co. v. United States, 53 USPQ 246, 250 (Ct.Cl.1942), aff'd in part and vacated in part, 320 U.S. 1, 63 S.Ct. 1393, 87 L.Ed. 1731 (1943). We have held that the entire market value rule permits recovery of damages based on the value of a patentee's entire apparatus containing several features when the patent-related feature is the basis for customer demand. State Indus., 883 F.2d at 1580, 12 USPQ2d at 1031; TWM Mfg. Co. v. Dura Corp., 789 F.2d 895, 900-01, 229 USPQ 525, 528 (Fed.Cir.), cert. denied, 479 U.S. 852, 107 S.Ct. 183, 93 L.Ed.2d 117 (1986). 36 The entire market value rule has typically been applied to include in the compensation base unpatented components of a device when the unpatented and patented components are physically part of the same machine. See, e.g., Western Elec. Co. v. Stewart-Warner Corp., 631 F.2d 333, 208 USPQ 183 (4th Cir.1980), cert. denied, 450 U.S. 971, 101 S.Ct. 1492, 67 L.Ed.2d 622 (1981). The rule has been extended to allow inclusion of physically separate unpatented components normally sold with the patented components. See, e.g., Paper Converting, 745 F.2d at 23, 223 USPQ at 599. However, in such cases, the unpatented and patented components together were considered to be components of a single assembly or parts of a complete machine, or they together constituted a functional unit. See, e.g., Velo-Bind, Inc. v. Minnesota Mining & Mfg. Co., 647 F.2d 965, 211 USPQ 926 (9th Cir.), cert. denied, 454 U.S. 1093, 102 S.Ct. 658, 70 L.Ed.2d 631 (1981). 37 In Paper Converting, this court articulated the entire market value rule in terms of the objectively reasonable probability that a patentee would have made the relevant sales. See 745 F.2d at 23, 223 USPQ at 599-600. Furthermore, we may have appeared to expand the rule when we emphasized the financial and marketing dependence of the unpatented component on the patented component. See id. In Paper Converting, however, the rule was applied to allow recovery of profits on the unpatented components only because all the components together were considered to be parts of a single assembly. The references to financial and marketing dependence and reasonable probability were made in the context of the facts of the case and did not separate the rule from its traditional moorings. 38 Specifically, recovery was sought for the lost profits on sales of an entire machine for the high speed manufacture of paper rolls comprising several physically separate components, only one of which incorporated the invention. The machine was comprised of the patented rewinder component and several auxiliary components, including an unwind stand that supported a large roll of supply paper to the rewinder, a core loader that supplied paperboard cores to the rewinder, an embosser that embossed the paper and provided a special textured surface, and a tail sealer that sealed the paper's trailing end to the finished roll. Although we noted that the auxiliary components had separate usage in that they each separately performed a part of an entire rewinding operation, the components together constituted one functional unit, including the patented component, to produce rolls of paper. The auxiliary components derived their market value from the patented rewinder because they had no useful purpose independent of the patented rewinder. 39 Similarly, our subsequent cases have applied the entire market value rule only in situations in which the patented and unpatented components were analogous to a single functioning unit. See, e.g., Kalman v. Berlyn Corp., 914 F.2d 1473, 1485, 16 USPQ2d 1093, 1102 (Fed.Cir.1990) (affirming award of damages for filter screens used with a patented filtering device); TWM, 789 F.2d at 901, 229 USPQ at 528 (affirming award of damages for unpatented wheels and axles sold with patented vehicle suspension system); Kori Corp. v. Wilco Marsh Buggies & Draglines, Inc., 761 F.2d 649, 656, 225 USPQ 985, 989 (Fed.Cir.) (affirming an award of damages for unpatented uppers of an improved amphibious vehicle having a patented pontoon structure), cert. denied, 474 U.S. 902, 106 S.Ct. 230, 88 L.Ed.2d 229 (1985). 40 Thus, the facts of past cases clearly imply a limitation on damages, when recovery is sought on sales of unpatented components sold with patented components, to the effect that the unpatented components must function together with the patented component in some manner so as to produce a desired end product or result. All the components together must be analogous to components of a single assembly or be parts of a complete machine, or they must constitute a functional unit. Our precedent has not extended liability to include items that have essentially no functional relationship to the patented invention and that may have been sold with an infringing device only as a matter of convenience or business advantage. We are not persuaded that we should extend that liability. Damages on such items would constitute more than what is adequate to compensate for the infringement. 41 The facts of this case do not meet this requirement. The dock levelers operated to bridge the gap between a loading dock and a truck. The patented vehicle restraint operated to secure the rear of the truck to the loading dock. Although the two devices may have been used together, they did not function together to achieve one result and each could effectively have been used independently of each other. The parties had established positions in marketing dock levelers long prior to developing the vehicle restraints. Rite-Hite and Kelley were pioneers in that industry and for many years were primary competitors. Although following Rite-Hite's introduction of its restraints onto the market, customers frequently solicited package bids for the simultaneous installation of restraints and dock levelers, they did so because such bids facilitated contracting and construction scheduling, and because both Rite-Hite and Kelley encouraged this linkage by offering combination discounts. The dock levelers were thus sold by Kelley with the restraints only for marketing reasons, not because they essentially functioned together. We distinguish our conclusion to permit damages based on lost sales of the unpatented (not covered by the patent in suit) ADL-100 devices, but not on lost sales of the unpatented dock levelers, by emphasizing that the Kelley Truk Stops were devices competitive with the ADL-100s, whereas the dock levelers were merely items sold together with the restraints for convenience and business advantage. It is a clear purpose of the patent law to redress competitive damages resulting from infringement of the patent, but there is no basis for extending that recovery to include damages for items that are neither competitive with nor function with the patented invention. Promotion of the useful arts, see U.S. Const., art. I, Sec. 8, cl. 8, requires one, but not the other. These facts do not establish the functional relationship necessary to justify recovery under the entire market value rule. Therefore, the district court erred as a matter of law in including them within the compensation base. Accordingly, we vacate the court's award of damages based on the dock leveler sales.