Court Opinion

ID: 9460292
Source: CourtListenerOpinion
Date Created: 2023-08-04 21:46:37.27625+00
Date Added: 2024-06-11T17:36:33.616496
License: Public Domain

CLARK, Circuit Judge
(concurring in part and dissenting in part):
I concur in the affirmance of the district court’s finding that the defendant’s predecessor, Reed, infringed Hughes’ patent for drill bit seals. However, I respectfully dissent from the affirmance of the district court’s damage award.
The trials of liability and of damages in this case were separated by over one year and three months. On April 2, 1971 following discovery and a full hearing, the district court made extensive written findings as to liability. No judgment was then entered. Instead, the parties proceeded with an accounting and submitted the damage issue on depositions and a stipulation, with the expressed but unfulfilled hope that the final damages decision might obviate this appeal. The court’s memorandum opinion reasoning its resolution of the damage issue was not entered until July 14, 1972. In several significant respects this memorandum is at variance with the prior findings. The original findings are more compatible with the record evidence and with logic. The majority opinion states the crucial issue on damages depends upon whether the patented seal which Reed infringed gave the drilling bits in which it was installed their entire commercial value. Hughes, it says, must lose this issue on a failure-of-proof basis, largely because unsealed drilling bits have substantial commercial value. This determination does not turn on proof of market shares but on Hughes’ inability to satisfy the trial court that purchasers of sealed bits would not have bought unsealed bits from Reed in preference to buying sealed bits from one of the other three competitors. This reasoning targets my disagreement.
The problem is one that may be better understood by moving the reader’s attention from the mechancially esoteric field of drilling bits to the more commonplace markets for television sets. The question would then be posed as follows. Assume four companies manufacture all television receivers. Assume *932further that three of the companies offer both black and white and color sets and that the fourth infringes a patent of the third in order to compete in the color set market. Assume the company whose patent is infringed proves infringement. Must it also prove that customers who paid the premium over the price of a black and white set to buy an infringing color set would not have bought a black and white set from the infringer rather than purchasing a color set of another make? Of course not. The reason such proof is unnecessary is because of the clearly separate and distinct markets involved. The same is true here. Sealed bits cost more. Sealed bits do more. Drillers who want sealed bits do not want unsealed bits. Proof of the divided markets for these two products was all that should have been required of the patent holder. The impossible burden ascribed in this case denies to the inventor the fruit of its exclusive rights in the patented seal it discovered.
Both the district court’s damage memorandum and the damage portion of this court’s opinion conclude that Hughes adduced insufficient evidence to prove that the sole cause of Reed’s sealed bit sales was the presence of the infringing seal. Both courts surmised that other factors such as price, reliability, versatility, service after the sale, company reputation, etc. “might” have been at work in these sales. Such conjecture seems to me to be clearly contrary to the following findings relating to infringement liability:
Following their introduction in 1960, sealed bearing bits embodying the invention of the patent in suit have been extremely successful in reducing the problem of bearing wear. The effective life of these bits, particularly in adverse drilling areas such as West Texas and Oklahoma, is often two to three, or even five, times longer than that of similar “slush lubricated” bits drilling under the same conditions. In less dramatic situations, the driller can expect at least a thirty to fifty percent increase in overall effectiveness. In instances, one sealed bearing bit will replace several of the previous conventional bits.
Such increases in bit life are of critical economic importance in the drilling of wells. When the life of a rock bit has expired, the entire string of drill pipe must be raised, uncoupled and stacked; a new bit substituted; and the string relowered into the hole. Such “round trips” of the drill string require substantial time . and effort of the drilling crew, during which no actual progress is made in the drilling operation. In typical wells of two to five miles in depth, 8 hours, to a day or more may be required to change a bit. Since the operating cost of a drill rig—ranging upwards from $2,000.00 per day depending on the size of the rig—continues regardless of whether the bit is drilling or en-route in a round trip, the expense of replacing a worn bit is substantial. Round trips are expensive, sometimes hazardous to the equipment and crew, and nonproductive to the driller.
The introduction of the sealed bearing bit in 1960 has resulted in longer bit life and the reduction of round trips necessary to change bits. Wells are being drilled in less time, and at less cost. Wells not previously drilled because of prohibitive economic considerations, are now being drilled.
After Hughes Tool Company began testing its sealed bearing bits in the field, other rock bit manufacturers instituted specific programs to develop a competitive product. Smith Tool Company began in 1958. Security Engineering Division of Dresser Industries started in 1959. The defendant Reed’s interest in seals was also reawakened.
Reed’s concern over the competition from the new Hughes sealed bearing bits grew, and field testing of new designs was stepped up; in May of 1960, Reed’s research department wrote: “Please try to run all of these *933grease seal experiments as quickly as you can. I believe it is only a matter of time before our worthy competitor perfects their grease seal to a point we will be virtually out of the insert bit business.”
Hughes has sustained irreparable injury as a result of defendant’s infringement, and will continue to sustain such injury unless defendant is enjoined from making, using or selling the seals hefe found to infringe.
The record reflects that unsealed drilling bits of the type here involved had been marketed in one form or another since 1909 and continued to be marketed during the entirety of the infringement period here involved. The approximate price of such an unsealed bit was 390 dollars. Sealed bits enjoyed a selling price of 500 dollars. The reason customers were willing to pay this premium for bits with sealed bearing surfaces was that in drilling hard rock formations the longer useful life of the more expensive sealed bit made it a money- and time-saving device. Unsealed bits not only were useful but were preferred for many less demanding drilling applications. It just could not be plainer to me that the market for sealed bits and the market for unsealed bits were separate. This being so, the case was made. Customers desiring thoroughbred horses don’t buy mules. But for Reed’s decision to become an infringer, the market for sealed bits then belonged to Hughes and the other two competitors.
The findings on liability, which have never been modified or reversed, demonstrate that the incorporation of the, infringing seal in 19,463 bits produced by Reed between 1963 and 1969 was the motivating cause of every one of the sealed bit sales which Reed made during this period, because the seals converted Reed’s bits from an unwanted product to one that sold at a premium. No one disputes that there were only four competitors in this field during the period in question—Hughes, Reed and two other companies. The exact shares of the total sealed bit market of each company was stipulated for every relevant period. It is also stipulated that Reed’s sealed bit sales—every one of which incorporated Hughes’ seals—netted Reed a profit of 1,469,903 dollars, and that Hughes’ profits would have been at least equal to the profits made by Reed. Thus Hughes’ losses due to the infringement were shown to be 1,234,565 dollars.1
Arguendo, I would advance one other difference with the majority’s damage verdict affirmance. Here again my position does not depend upon an appellate conclusion that trial court findings were clearly erroneous. Rather, it too is premised upon trial court findings which are fully accepted here.
The majority affirms the award to Hughes of a “reasonable royalty”. They find that a token royalty of 1.25% of the total sealed bit price, i. e., six dollars and twenty-five cents for each 500 dollar bit, is reasonable. This is based upon a determination that a 2-piece seal, used on an experimental basis by Reed in 40 bits before infringement began, was a commercially viable alternative to infringing Hughes’ patented seal. This *934conclusion is contrary to the following findings of the trial court in the liability phase of this litigation:
In the latter half of 1960, Reed began field testing its so-called “two-piece” seals comprised of two metal cores encased in rubber and held in compression in the bit by a separate metal spring. Variations of this design continued to be produced in 1961 and 1962. They were reported to be not competitive. In May of 1961, Reed’s field engineer advised that the Reed sealed bearing bits run in the past four months—“have been very disappointing. I feel that many times we would have done much better on footage, hours and conditions of the dull [bit] had we run a non-grease seal type bit. The Hughes grease seal bits have set the pace and it is a fast one.”
In the latter part of 1962, Reed turned to the “one-piece” seal here accused of infringement. Field testing was initiated; the new bits were found to be competitive; the response from Reed’s field representatives was enthusiastic: “This is the run we’ve been looking for.” Two and a half months later, Reed came out with its first production sealed bearing bit.
Logic further dispels any assumption that a party having perfected a viable non-infringing device which the industry had sought for fifty years would suddenly quit its use of this discovery and substitute an infringing one. I agree with the trial court’s first findings and from them conclude it is entirely implausible that Reed’s 2-piece seal was ever considered a viable alternative even by Reed.
I am so strongly compelled to the conclusion that the damage award here allows a deliberate infringer to pocket profits of one and a half million dollars and, when called to account, to tip the patent owner a paltry 120,000 dollars, that I must dissent.

. The arithmetic calculation of lost profits is as follows:
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