277 F. 507 | E.D. Wis. | 1921
The case is before the court upon exceptions to the report of Idle special master in the accounting proceedings pursuant to the decree. Although numerous exceptions have been filed, the parties agree that there is really but one question, the finding and award of damages to the complainant upon the measure of $1 as a reasonable royalty upon each of the infringing structures made and sold by the defendant. It is conceded that the defendant made and sold approximately 15,800 infringing structures, the aggregate selling price being approximately $49,000.
As a preliminary to 'a consideration of the question submitted, reference may be made to the record in its disclosure of matters bearing pertinently upon the inquiry made by the master, respecting profits arising upon manufacture and sale, and by this is meant the ordinary manufacturing and selling profits. The defendant, in response to the equity rule, filed its account in debtor and creditor form, giving on the one hand the items entering into manufacturing and selling costs; on the other, the sales; the account balancing by disclosure of profits in the sum of $9,208.65. It appears that, upon this account, either with or without exception to specific items, inquiry was made through reference to the defendant’s books and records with the aid of skilled accountants, for the purpose of testing the accuracy of the disclosure. The master, after noting the profit conceded by the defendant, observes:
“The account is unsatisfactory as to the actual labor and material cost entering into the infringing velocipedes, and as to the overhead is a mere arbitrary charge. It appears from the testimony of Mr. Whitehead, secretary ■and treasurer of defendant company, and that of Mr. White, the accountant employed by the complainant, that it is impossible to obtain the actual cost of either labor, or material from defendant’s books of account and records. The account filed by defendant shows greater credit for material cost than the computation made by Mr. White, and no real check could be made from any available data. There is no proof of sales lost by complainant by reason of this computation. Complainant had never been granted licenses for the use of its invention. The one satisfactory method of determining the measure of damages suffered by complainant by reason of the wrongful act of defendant would seem to be the determination of such sum as under all circumstances would have been a reasonable royalty for the defendant to have paid for such use.”
“ * * * That it is impossible to make a satisfactory computation of the actual profits, gains, and advantages which have accrued by reason of said infringement; that the damages to the complainant by reason of the said infringement by the defendant are the sum of $15,392.”
Respecting the determination that $1 per velocipede sold would be a reasonable royalty, the master remarks:
“While this determination results in an amount in excess of the total profits as shown by defendant’s account on the sale of infringing velocipedes, yet, as indicated, such profits are not based on actual, but on estimated, cost, which cannot be cheeked. Further, it appearing to the master that infringement was willful, and after an actual notice of complainant’s claims, continued during the progress of the litigation, the sum of $1 per infringing velocipede manufactured and sold by the defendant company is deemed under all the circumstances, and taking into account the nature of the invention and its advantages, and the additional value given to the completed velocipede, a reasonable royalty, and a proper measure of complainant’s damages by reason of the infringement.”
If upon an accounting in a patent case, the profits and the damages may be severally inquired into and determined, leaving it to the plaintiff to elect which he shall ask to be awarded by the judgment, the defendant probably cannot complain if but one or the other is in fact determined upon the hearing—assuming that the evidence, though “unsatisfactory,” would enable determination of' both. Therefore, in this case, the failure on the part of ihe master to fix and determina the profits, if the evidence warranted it, may not be ground for just exception, nor furnish a basis for overthrowing an award of damages. The parties here seem quite agreed that it is entirely permissible to ascertain damages through a determination of a reasonable royalty for the use of the invention, and that in determining such question resort may be had to all competent and pertinent proofs available to the parties.
And while the defendant takes the position that upon the evidence the plaintiff was not entitled to a determination of profits, because it failed to discharge the burden of proving profits attributable to the invention, it likewise concedes that upon the record the master could not escape determining that the defendant made a total profit of $9,-200 approximately upon the sale of the devices which contained the patented hub. Therefore the defendant urges—regardless of the tenability of its claim that if the master were dealing with the single issue of assessing attributable profits the burden required of the plaintiff to show a segregation had not been discharged—that the evidence concerning aggregate profits must break down the master’s finding of reasonable royalty as being unwarranted in amount.
Counsel calls attention to the testimony in the record upon which the plaintiff relies in support of the reasonable royalty finding. Two witnesses testified that in their opinion $1 per velocipede would be a reasonable royalty. One of these witnesses probably did not qualify to speak upon the subject. The other was allowed to qualify—an oh
While the master characterized the evidence respecting profits as “unsatisfactory,” and upon an argument before the court counsel for the plaintiff placed some stress upon the inability of witnesses, expert accountants, to fix accurately items of cost, I do not believe that the situation was substantially different from that found in many -cases where profits are in fact determined. Where a manufacturer is engaged- in diversified lines, his books are rarely kept—and by that I mean his regular account books—so that, upon turning to them, the factory cost of one line, or a single article, is readily disclosed. True, cost, systems, or so-called “efficiency methods,” may be introduced as a part of a manufacturer’s record, which will disclose unit costs. But in such cases the same method is from day to day required to be pursued as must be pursued upon inquiry into costs, and the like, where no such record is kept. Reference is made to overhead. There are few cases in which overhead and its proportional allotrhent to various lines in a single factory is not entirely a matter of judgment or estimate; and, of' course, no matter what the basis of allotment, it is in a sense arbitrary.
Now, these observations are preliminary to a consideration of two propositions:
Clearly the question respecting reasonable royalty may be well tested by asking whether a manufacturer, who, without a license burden, manufactures and sells at approximately $3.30 to $3.50 to make a profit of 22% per cent, as against competitors (the record shows that the parties have eight or ten rivals), who likewise are not burdened with a license royalty upon the patented hub, could in any event add to his manufacturing cost and profit a burden of $1, or nearly 33% per cent., and still compete? It is true, as this court observed in the
Tliis ail has reference to the practical aspect of a determination of “reasonableness” and the manner in which such determination must be effected. Is it probable that the plaintiff and defendant, thus negotiating, would recognize “reasonableness” to reside in a royalty which added nearly one-third to the defendant’s normal burden, assuming that without the royally he could manufacture-upon an equality with the plaintiff? Is it possible that, if the plaintiff and defendant could each manufacture the article at í¡53 and at a profit of from 20 to 30 per cent., the defendant, for the sake of introducing the plaintiff’s novel construction, would assume such a burden and as a practical matter endeavor, not only to get his former normal profit, but an augmented profit, because of the augmented cost: that plaintiff could continue to sell at a profit at S3, but that defendant could readily compote by selling at $4: and that their respective distributors could freely compete upon the same or relatively greater differences which •ultimate retail selling prices would exhibit? This leaves out of consideration a second proposition, which, if the court were considering an award of profits, can hardly be left out of the case, viz.:
But no such question is here raised, and the case was not disposed of by the master upon the hypothesis that the profits to be attributed to the patented hub could not be ascertained, but that the evidence was unsatisfactory, dealing apparently with the evidence showing the profits—22% per cent.—made upon sale of the entire structure. This is referred to with the idea that the profits of $9,200 approximately made upon the aggregate sales of velocipedes would probably prove considerably in excess of any apportionment which rationally should be made of profits attributable solely to the infringing feature, viz, the hub, .of defendant’s construction; and it all fortifies the suggestion above made that, were the parties dealing with each other for the purposes of ascertaining reasonableness of a royalty, neither of them could accede to a burden of $1 added to normal manufacturing cost of the velocipede embodying the patented hub.
An order may be entered, modifying the master’s report, as indicated in this opinion.