247 F. 899 | N.D. Ohio | 1917
This cause is now before me on exceptions to a report of Special Master W. H. Marlatt, Esq., filed herein October 30, 1915, finding the damages sustained by complainant and the profits made by the defendant by reason of wrongful infringement by defendant of United States letters patent No. 527,242, issued October 9, 1894, to John E. Golding, and later assigned to complainant. Both parties have excepted, and, before proceeding to a statement or consideration of their exceptions, a brief preliminary statement of the case needs to be made.
This suit was begun in this court in February, 1905. Upon final hearing Judge Tayler held the patent invalid and dismissed the bill. (C. C.) 157 Fed. 564, August 6, 1907. Upon appeal the Circuit Court of Appeals of this circuit reversed this decision, holding the patent valid and infringed. 164 Fed. 849, 90 C. C. A. 611, October 16, 1908. Prior' to these decisions, the Circuit Court of Appeals of the Third Circuit had held this patent to be invalid. 146 Fed. 984, 77 C. C. A. 230, September 10, 1906. In consequence of this conflict in the decisions of two different Circuit Courts of Appeal, the United States Supreme Court took jurisdiction of both cases by certiorari, and on final hearing reversed the judgment of the Third Circuit Court of Appeals and affirmed the judgment of this circuit, thus finally^ determining that said letters patent were valid and infringed by the defendant. 214 U. S. 366, 29 Sup. Ct. 652, 53 L. Ed. 1034, June 1, 1909.
This court, by decree dated August 3, 1909, thereupon appointed Mr. Marlatt as special master to ascertain and report an account of the gains, profits, and advantages which the defendant had made by reason of said infringement, and also of the damages that complainant had suffered by reason thereof. Eater the Consolidated Expanded Metal Companies was permitted to intervene as a complainant, on the ground that it was a licensee of the original complainant for a part of the territory in which defendant had infringed, and was therefore entitled to all of the recovery made herein in excess of royalties due under its license to the original complainant. Its proportion of the recovery is stated by the" master (page 27), and no question arises on the hearing respecting this finding, or the proper division of the ultimate recovery, if any, between the two complainants.
Complainant has taken 7 exceptions to the master’s report. The defendant has taken 21 exceptions. These exceptions relate both to the finding of damages and of profits. I shall first consider the exceptions of both parties on the subject of complainant’s damages.
Complainant excepts because the master refused to add the damages to the profits, find on this hearing also insists that the damages should be trebled (7th exception, master’s printed report, 29; complainant’s brief, 107). Defendant’s exceptions to the finding of damages raise in different ways the question only of whether or not a .sufficient showing is made of a fixed and uniform license system to furnish á basis of damages (exceptions 1 to 7, Master’s Printed Report, pp. 65, 66).
As already stated, he finds the damages to be $20,442, and the profits $61,867.81, and if these findings are sustained complainant is not entitled to have the profits increased by adding thereto the other sum. It is only when the profits found are less than complainant’s actual damages that a sum is added to profits in order to make the recovery equal to actual damages. It is true, as contended, equity now has, under section 4921, R. S., as amended in 1897 (Comp. St. 1916, § 9467), jurisdiction to assess actual damages of the plaintiff, as well as to ascertain defendant’s profits; but this power does not permit an award of double compensation, but only permits an election to award
The defendant, before making use of the infringing process, obtained the advice of several counsel learned in the law, who advised that its conduct would not be an infringement or violation of complainant’s patent. During the entire period of infringement there were decisions of federal courts of high authority holding that complainant’s patent was invalid, and that defendant’s acts were not an infringement of it. These conflicting opinions of court and counsel were not finally settled until the decision of the United States Supreme Court June 1, 1909. Nothing appears to impeach the defendant’s good faith, or to warrant a belief that it was doing anything else than exercising what it believed to be its legal rights. No element of wantonness appears in its acts or conduct. In this situation damages should not be trebled, nor any sum added as punishment or for complainant’s expense of litigation. Walker on Patents (5th Ed.) § 367.
Defendant’s infringement began in 1904. Several licenses had been granted prior to this time. In August, 1887, one was granted to Chess, Cook S: Co. for the states of New York, Pennsylvania, New Jersey, 'Delaware, West Virginia,, and Ohio; one was granted in May, 1896, to the Southern Expanded Metal Company for the states of Maryland, Virginia, North Carolina, South Carolina, Georgia, Florida, and the District of Columbia; another was granted in August, 1903, to the New York Engineering Company for the states of Maine, New Hampshire, Vermont, Massachusetts, Connecticut, and Rhode Island; later, in' April, 1905, another license agreement for this same territory was granted to the Eastern Expanded Metal Company. Two others, not produced at the hearing, had also been granted prior thereto: One to the Western Expanded M etal Company at San Francisco, and the other to the St. Louis Expanded Metal Company at St. Louis. The exact dates of these two licenses and the territory included therein, are not definitely shown. They had been canceled or terminated prior to the beginning of defendant’s infringement.
Ln the early days of the patent all licensees were charged a uniform royalty of $5 a ton on all expanded sheet metal made by the process. Some licenses may have provided for the payment of $10 a ton, with a discount or rebate of $5 a ton. In effect, however, the rate in all was $5 a ton. Later, and prior to the beginning of defendant’s infringement, the license fee was reduced and graded, and the prices fixed and established were as found by the master, namely, $2.50 a ton on all expanded metal under 22 gauge, $4 a ton on all over 22 gauge, and $1 a ton on all of 7 gauge. These prices, the master finds and the evidence shows, were the uniform and prevailing rates between 1lie complainant and all ils licensees during’ the entire period of infringement.
On behalf of defendant it is urged that this showing is insufficient, for two reasons: (1) That the license agreements included other patents for expanded sheet metal; and (2) that they were exclusive licensees. It is true other patents were included in these licenses. It is also true that they were exclusive licensees, in the sense that each licensee had the exclusive right to manufacture, sell, and use within the territory set forth in his license agreement. The master, however, finds that only one patent was used at any one time in expanding any sheet metal product; that the Golding and Durkee process, much used prior to complainant’s invention, and during the early period of these licenses, went, gradually out of use; that the licensee, whether he used one process or the other, paid uniformly the full license fee upon all the product produced by either process, and particularly by the process infringed by the defendant; that no two patents were used and available, or intended for use,’ concurrently in producing any part of the product; that as the earlier patents expired, leaving only complainant’s patent in force, the same royalty was maintained and continued in force. In
These facts as found are not challenged. The inference therefrom that a fixed, uniform royalty is sufficiently shown to make it a basis for determining complainant’s damages is, however, challenged by defendant’s first 7 exceptions. I am of-opinion that the master’s conclusions are correct and should be sustained. .
Counsel for defendant cite in support of their contention the following: Moffitt v. Cavanagh (G. C.) 27 Fed. 511; Colgate v. Western Mfg. Co. (C. C.) 28 Fed. 146; Bell v. United States Stamping Co. (C. C.) 32 Fed. 549-551; Hunt Bros. Fruit Packing Co. v. Cassiday, 53 Fed. 257, 3 C. C. A. 525; American Sulphite Pulp Co. v. De Grasse Paper Co., 193 Fed. 653, 113 C. C. A. 521. These authorities, it is said, hold that, when other patents are included, and when the licenses are exclusive they are not a just measure of the right acquired or taken by a wrongful infringer; in other words, that different things are being valued, and one is not the proper measure of the value of the other. Manifestly the licensee’s payment should be made for a right substantially similar to that which the infringer wrongfully' appropriated; otherwise, one cannot be said to be the fair market value of the other. A substantial similarity or equivalency between that for which the licensees were paying and that which the defendant appropriated does, however, appear on the facts as found. The payments of complainant’s licensees were made for the right to use complainant’s process in expanding sheet metal. This is precisely what the defendant wrongfully appropriated. It is true that the royalty payments were made under agreements which purported to give an exclusive right in a limited territory, but the exclusive force and effect of this right is, for practical purposes, much less than is contended. Keeler v. Standard Folding Bed Co., 157 U. S. 659, 15 Sup. Ct. 738, 39 L. Ed. 848. Defendant appropriated and exercised a right to manufacture, use, and sell equal to any other licensee; indeed, as is justly observed by the master, it exercised the right of selling throughout the entire United States. And it is also true, as observed by the master, neither defendant nor any one else ever did or could have acquired a license at a lower rate. On these facts, the royalties paid by complainant’s licensees are to be taken as the correct measure of complainant’s damages for defendant’s wrongful infringement. These facts satisfy the settled rule under which a fixed and uniform royalty is made the measure of value of the patentee’s right which defendant has wrongfully taken. Walker on Patents (5th Ed.) §§ 556-562. Nor is the royalty or license fee to be regarded as wanting in uniformity because it was higher in the early days, and later reduced to the basis adopted by the master. The fee had reached this
Moreover, the master’s finding of damages should, in my opinion, be sustained, even if this proof of an established royalty is, in some respects, insufficient to satisfy legal requirements. Certainly on these facts the rule of a reasonable royalty or general damages justifies an award of this sum. See United States Frumentum Co. v. Lauhoff, 216 Fed. 610, 617, 132 C. C. A. 614; Dowagiac Mfg. Co. v. Minnesota Plow Co., 235 U. S. 641, 35 Sup. Ct. 221, 59 L. Ed. 398.
Complainant’s seventh exception and defendant’s first 7 exceptions will therefore be overruled. Complainant’s request to treble or increase the damages as found will be denied. I shall now proceed to a consideration of complainant’s and defendant’s exceptions to the master’s finding that defendant’s profits for the wrongful infringement are $61,867.81.
No exception is taken to the finding of the master as to the quantity of metal expanded by the use of the infringing process, nor as to the gross receipts of the defendant from its sale of the product. Complainant excepts, however, to a credit item allowed by the master of $90,417.-66 for alleged expenses or losses of marketing expanded sheet metal in branch offices (exceptions 1 and 2, master’s printed report, p. 28); also because the master allowed a credit item of $16,569.90 for interest on bills payable, instead of $9,113:11 (exception 4); also because the master allowed a credit item of $18,427.34 for depreciation, and an item of $1,032.91 for miscellaneous expenses.
On this hearing, the exceptions as to the two items last mentioned are not pressed (Complainant’s Brief, p. 7). The fourth exception, relating to interest on hills payable, it is conceded should be overruled unless the item of $90,417.66 is disallowed (Complainant’s Brief, p. 75). Complainant’s exceptions to1 the master’s report of profits is therefore reduced to the single item of $90,417.66, alleged expense for marketing product in branch offices.
Defendant has taken 14 exceptions to the master’s report (pages 66-78). These exceptions present, however, only two1 questions for consideration: (1) The refusal of the master to allow an item of $33,684.68, interest on capital invested, for which credit was claimed; and (2) the allowance by the master of the entire profits made by defendant from the sale of the infringing product—it being contended that he should have allowed the sum of 60 cents a ton only, aggregating $4,784.40, which, it is said, is the profit or advantage obtained by using the infringing process over other processes open and available for use by defendant. These several exceptions will be briefly considered in their order.
Defendant’s reasons for establishing these branch offices and making these expenditures were, in brief, that the use of expanded sheet metal in reinforced concrete construction was then in an experimental stage; that other materials were in existence and used in competition with it; that architects and engineers were doubtful as to the strength and efficiency of expanded sheet metal; that, in order to introduce it, guaranties of its strength and efficiency were necessary; that architects and engineers would not accept a guaranty from defendant for expanded sheet metal alone, but required guaranties covering the completed structure; that, in view of this situation and these difficulties, these branch offices were established for the purpose of taking construction contracts and engaging in the construction of buildings from time to time, in which expanded sheet metal was used for reinforcing purposes. All this was done for the purpose of promoting and introducing expanded sheet metal and overcoming objections made to its use, and the item in question represented the excess of expenditures over receipts in that department of defendant’s business.
These, in substance, are the main facts found by the master. He is of opinion that these expenditures were legitimate, stand on the same basis as advertising, employing salesmen, erection of sample buildings, are to be regarded as a reasonable expense incident to the sale by defendant of the infringing product, and should be deducted from its gross receipts.
In this conclusion of the master I concur. It may be true that there was no distinct agreement between defendant and the managers of these branch offices that defendant should bear the loss and the managers take the entire profits. It is undoubtedly true that, at the time and prior to the hearing before the master, this item was regarded by defendant in the light of bad debts and actual losses in business. In fact, there is testimony that the Expanded Metal Fireproofing Company, in which name Mr. Ramsey conducted a branch office, had become a bankrupt early in 1907 (see Pitkin’s testimony, Printed Record,
It may he true, as is now contended, that defendant’s business methods were unwise; that, being an Ohio corporation, it had no right to guarantee construction contracts made by a branch office in which its own capital was not invested, or that its expenditures and losses on account thereof were unreasonable and unnecessarily large. The fact remains that such expenditures were made and such losses were incurred, and it is immaterial whether they were made or incurred under a contract to bear the losses, or whether the money was expended or advanced to these branch offices and thereby lost. Defendant is required to account only for the profits actually made by its use of the infringing process. Complainant is not entitled to recover profits which the infringer might or should have made, had it conducted its business in a different manner. Criticism of this item reduces itself to an assertion that defendant’s action was illegal; that it was unwise and unnecessary; that, had it acted otherwise, its profits would have been larger, and its losses would have been less; hut this does not show that defendant made greater profits than the master has found, or that defendant did not make or sustain these expenditures or losses in a good-faith effort to promote and. develop the use and sale of the infringing product in building construction.
For these reasons complainant’s exceptions will be overruled.
In defendant’s brief, however, it is urged that complainant’s patent was for a processj and not for a product; that its patent did not cover expanded sheet metal as a product, but. only a process for making it; and that, therefore, the defendant was at' liberty to make expanded sheet metal by any process which did not infringe complainant’s process. This, of course, is true. In this situation 'it is said the correct measure of damages is the gains or advantages which the infringer derived from using the patented process in comparison with the use of any other means or process open to the public and adequate to enable him to obtain an equally beneficial result. This is undoubtedly the law.
The question is: Which rule should, on the facts here present, be adopted and applied? Upon an examination of the cases cited, and a weighing of all considerations making for and against defendant’s position, I have reached the conclusion that the master’s finding should be sustained. The master states (pages 11-18) his findings of fact and his reasons for his conclusions, to which reference is made.
Defendant asserts that two other processes were open to it—one being the “old” process, covered by the Golding and Durkee patent, which had expired in 1902; and the other, called in the record the “corrugated” process, developed or invented by H. E. White, defendant’s engineer. The Golding and Durkee process was open to defendant, but the master finds that it was not adequate to enable defendant to obtain an equally beneficial result. Defendant evidently was of the same opinion; otherwise, it would undoubtedly have used it. The master finds that the product produced by the Golding and Durkee process was not the same product as that produced by the infringing process; in other words, that the product of the infringing process could not have been made and produced by the Golding and Durkee process. The difference in the two products is set forth so fully in the master’s report and in Expanded Metal Co. v. Bradford, 214 U. S. 366, 29 Sup. Ct. 652, 53 L. Ed. 1034, that I deem it unnecessary to restate it. It is sufficient to say that I concur in the master’s conclusion.
The master’s conclusion in this respect should also be sustained for a further reason. No evidence was offered showing the cost of producing expanded sheet metal by the Golding and Durkee process. This the defendant concedes (see Defendant’s Brief, p. 56). Prima facie complainant had made a showing which entitled it to recover all the profits on the infringing product; the burden was upon the defendant to show the existence of another process, and the difference between the cost of
The “corrugated” process was devised by H. E. White, an engineer in the employ of the defendant, late in 1903 or early in 1904. At that time the defendant was preparing to engage in the business of making expanded sheet metal, and White testifies that he devised this process for the purpose of avoiding infringement. At that time the Golding and Durkee patent had expired, and the only other process in existence and subject to infringement was complainant’s process. In 1904 the “corrugated” process was used only in an experimental way, evidently with a view to perfecting it. In 1905 a machine was set up and used for expanding sheet metal by this process. It was, however, used only for two or three weeks, and only 8 or 10 tons of metal expanded by it. In 1906 a few sheets only were expanded. In October, 1909, after the injunction was awarded in this case, it was put into use by defendant, and continuously used until January, 1912, during which period 2,207 tons of metal were expanded. In January, 1912, after complainant’s patent had expired, defendant then shifted back to complainant’s process, and thereafter discontinued and abandoned the use of the “corrugated” process.
The master finds that the product produced by the ‘“corrugated” process is essentially different, and that the infringing product could not have been produced by it This essential difference, he finds, is that the strands of the meshes are stretched in the complainant’s process, and that the strands in the “corrugated” process are not stretched, but merely bent. This-finding is much criticized. It is said that the stretching of strands was present in the Golding and Durkee process; that it was held not to be a patentable feature of any process by the United States Supreme Court, in its opinion in Expanded Metal Company v. Bradford, supra; that stretching was a disadvantage, and not a benefit, and was, in fact, obviated by annealing expanded sheet metal thus made before offering it for sale. Undoubtedly the strands are stretched in all three processes; but what the master had in mind, no doubt, was the stretching in an elongated manner, so as to keep the expanded metal as produced equal in length to the sheet from which it was being cut. This was a manifest advance of complainant’s process over the Golding and Durkee process. On behalf of defendant, it is further said that expanded sheet metal, made by the “corrugated” process, is indistinguish - able from that made by complainant’s process; that only an expert could tell the difference, and he only with the aid of a microscope; and that, in fact, defendant’s product made by this process went into the same stock with its other product, and was sold, and accepted by customers indiscriminately.
In Walker on Patents (5th Ed.) § 725, it is said that the other article or process to be used as a basis of comparison must have been known or in existence prior to the date of the patent which is infringed; in other words, that the standard of comparison must have been known in the art prior to the complainant’s invention. In Turrill v. Illinois Central R. R. Co. (C. C.) 20 Fed. 912, it is explicitly stated that the process or article tó be used as a basis for comparison must have been open to the public at the date of the patent which is infringed. Many excellent reasons are advanced in the opinion in support of this conclusion. The judgment in this case was affirmed by the United States Supreme Court in Illinois Central R. R. Co. v. Turrill, 110 U. S. 502, 4 Sup. Ct. 5, 28 L. Ed. 154. In Sessions v. Romadka, 145 U. S. 29, 45, 12 Sup. Ct. 799, 803 (36 L. Ed. 609), Mr. Justice Brown says:
“Tliis court has, however, repeatedly held that in estimating damages in the absence of a royalty it is proper to consider the savings of the defendant in the use of the patented device over what was known and in general use for the same purpose anterior to- the date of the patent.”
An examination of McCreary v. Pennsylvania Canal Co., 141 U. S. 459, 464, 465, 12 Sup. Ct. 40, 35 L. Ed. 817, convinces me that it is not in conflict with this statement of the law.
Defendant contends that any article or process available to an infringing defendant at any time may be used as a basis of comparison. Strong reasons are advanced why the date of complainant’s patent should not be taken in determining the process open or available to the public dr defendant. Whether these reasons should prevail over the reasoning of the learned judge in Turrill v. Illinois Central R. R. Co., supra, I deem it unnecessary to express an opinion. I am of opinion, however, from an examination of all the cases cited, that the other available process must have been in existence and open to public use in its completed form at the time the infringer appropriates a patented process; he should not be permitted to avail himself of inventions developed by himself or others after he has appropriated another’s property for the purpose of mitigating or avoiding the damage thus inflicted on another.
Much reliance is placed by defendant on Columbia Wire Co. v. Kokomo Steel & Wire Co. (7 C. C. A.) 194 Fed. 108, 114 C. C. A. 186. This case, it is said, holds that another process developed after the
This understanding of the case is supported by the later decision in the same circuit in Schmertz Wire Glass Co. v. Western Glass Co. (D. C.) 203 Fed. 1006, opinion by Sanborn, District. Judge, affirmed on appeal, 226 Fed. 730, 141 C. C. A. 486. Note especially middle paragraph, 203 Fed. 1009; second paragraph, 226 Fed. 736, 737, 141 C. C. A. 492, 493. All of defendant’s exceptions will therefore be overruled.
The hearing before the master was begun in September, 1909. All the testimony was completed May 22, 1913. Complainant had been given full access to defendant’s books and records. After defendant had submitted its statements, as required, and its officers had been fully examined and cross-examined with respect thereto, complainant caused a competent expert accountant to make an. examination at length of defendant’s books and records. Very few errors or inaccuracies were found by him in the statements previously submitted by the defendant, and no criticism was made by him of this item or any part of it.
The case was argued, and briefs filed and submitted to the master for decision, June 24, 1914. The master’s draft report was sent to counsel in February, 1915. The final hearing before the master on the draft report was had June 29, 1915. It was at this hearing that the complainant first submitted its motion and made its request to reopen the case. The request then made was that leave be given for a further examination of defendant’s books, and to call further witnesses, if necessary, upon the allowability of the item of $90,417.66 for expenses of marketing produce in branch offices. Manifestly the master did not abuse
A decree will, be entered in conformity with the conclusions herein expressed.