Fuji Photo Film Co. v. Benun (In Re Benun)Fuji Photo Film Co. v. Benun (In Re Benun)
OPINION
TABLE OF CONTENTS
I. Background.65
II. Pretrial Motions.68
III. Scope of Trial.70
A. Tranche I (1995 through August 21, 2001) .71
1. District Court I Judgment.71
2. Issue Preclusion.73
3. Factors Deemed Persuasive In Limiting the Scope of Trial.75
(a) “Willful” As Defined in Bankruptcy and Patent Law.75
(b) The Malice Requirement of § 523(a)(6).78
(c) District Court Refusal to Enhance Damages and the Federal
Circuit’s Comments in Appeal II.80
(d) The Repair Defense.81
4. This Court’s Review of Pretrial Submissions.81
5. Conclusion — Scope of Trial of Tranche I Issues.82
B. Tranche II (August 21, 2001 to December 12, 2003) Issue Preclusion.83
C. Trial Issues.85
IV. Tranche II (August 21, 2001 to December 12, 2003): Claims of Patent
Infringement, Inducement to Infringe, and Willful and Malicious Injury to Property per § 523(a)(6).85
A. Evidence Issues.85
B. Process of Refurbishing LFFPs.85
1. Effort to Establish a Standard for Permissible Repair Processing.85
2. Proof Required to Establish “Permissible Repair” Process.88
3. Determination as to Processing.90
C. First Sale Requirement.95
D. Conclusion as to Infringement.100
E. Whether Fuji Established Benun’s Willful and Malicious Injury to its
Property for Purposes of § 523(a)(6) Exception to Discharge in
Tranche II .102
2. Process of Repair.102
a First Sole. 103
(a) Factors Considered.. CO O t — 1
(b) Evaluation of Factors <50 O t-H
(c) Findings Regarding Willful and Malicious Injury in Tranche II <0 © t-H
(d) Summary of Tranche II “Willful and Malicious” Findings . OO O t-H
4. Calculation of Portion of Tranche II Judgment Excepted from Discharge. C5 O t-H
(a) Reloads of Reloads. 05 O t-H
(b) October 1, 2002 — December 12, 2003 period. O t-H tH
V. Tranche I (Pre-August 21, 2001): Whether Fuji Established Benun s Willful and Malicious Injury to Its Property for Purposes of § 523(a)(6) Exception to Discharge.110
VI. Issues of Enhancement of Compensatory Damages H t-H t-H
A. Lack of Clarity in the Patent Law. N tH tH
B. Facts Establishing Infringement. (M t-H t-H
C. Facts Establishing Damages. CO t-H t-H
D. Effect of Judgments, Penalty and Bankruptcy on Damage Enhancement and Fees. ^ t — I tH
E. Case, Taken as a Whole, Does Not Warrant Enhanced Damages ^ tH t-H
F. “Bad Faith” Finding of ITC II Compared and Contrasted. lO t-H t-H
VIL Interest on Claims; Attorneys’ Fees and Costs.116
VIII. Summary/Conclusion. .118
I. Background.
Fuji Photo Film Co., Ltd (“Fuji”) sues Chapter 7 debtor Jack C. Benun (“Ben-un”) to except from his bankruptcy discharge certain debt and claims arising from both established patent infringement and alleged continued infringement by Jazz Photo Corp. (“Jazz”) and Benun. In immediate dispute are complex questions of Benun’s purported “willful and malicious injury” to Fuji’s property rights in patents for disposable cameras. See 11 U.S.C. § 523(a)(6) (exception to discharge based upon such willful and malicious injury). This adversary proceeding was tried for twenty-three days over a period of more than nine months, and the court reaches the findings of fact and conclusions of law set forth hereinafter.
The Fuji-Jazz-Benun dispute has a decade-long history, during which Fuji pursued Benun and Jazz for patent infringement.
1
Jazz, in liquidation following
• ITC initial investigation (ITC I)— March 18,1998 to June 28,1999;
• Fuji District Court patent suit (District Court 7) — June 23, 1999 to March 18, 2003 (judgment date); and
• Appeal of ITC I to Federal Circuit (Appeal I) — September 28, 1999 to August 21, 2001 (decision date).
Appeal I
resulted in a reversal of the ITC on the basic
concept
of allowing repair. While disposable camera shells could be repaired, the affirmative defense of such repair had yet to be established by the appellants (including Jazz). The Federal Circuit’s lengthy opinion included only the most generalized description of “how to” refurbish LFFPs so that the affirmative defense of “repair” could be advanced by Jazz and others (leaving future process issues for eventual case-by-case resolution). The Federal Circuit reversal applied “to LFFPs for which the patent right was exhausted by first sale in the United States, and that were permissibly repaired.”
Jazz Photo Corp. v. Int’l Trade Comm’n,
District Court I, long stayed pending the Federal Circuit’s decision in Appeal /, resulted in a near $30 million judgment against Jazz, its Hong Kong subsidiary and Benun, jointly and severally. The judgment of March 18, 2003 (covering infringement only through the date of the decision in Appeal 1, August 21, 2001) propelled Jazz and Benun into this court. Jazz filed a Chapter 11 petition on May 20, 2003, and Benun filed a like petition on July 2, 2003. 2
Appeal II from District Court I specifically addressed (among other points of appeal and cross-appeal) the Jazz/Benun challenge to the willfulness determination as to the newly made LFFPs and Fuji’s challenge to the refusal to enhance damages (argued on appeal by Fuji as to refurbished LFFPs); on January 14, 2005 District Court I was affirmed on all points of appeal.
Meanwhile, ITC II had been initially interrupted by the bankruptcies.
5
Eventually, this court issued an order removing any perceived bankruptcy obstacle to the continuation of the ITC II enforcement proceeding. Things went badly there for Jazz and Benun. On July 27, 2004 the ITC adopted administrative findings that Jazz, with Benun’s complicity, had again infringed Fuji’s patents (now, after August 21, 2001). On the day of the Federal Circuit’s January 14, 2005 affirmance of the District Court in
Appeal II,
the ITC levied a $13,675,000 penalty (for violation of the 1999 Cease and Desist Order for the August 21, 2001 through December 12, 2003 period), jointly and severally, against Jazz and Benun. The penalty is due the United States government; however, Fuji has filed claims in the Jazz and Benun bankruptcies based upon the ITC findings. The ITC II penalty was appealed, again to the Federal Circuit
(“Appeal III”).
That appeal, on
Benun’s behalf
(only), after Jazz’s withdrawal, generally affirmed ITC II. Yet there was a reversal of a portion of the ITC’s finding, the appeal
approving
the remolding of certain “spent parts” in the allowable process of repair.
See Appeal III,
In a related branch of the Fuji-Jazz-Benun disputes, certain containers of LFFPs were denied entry into the United States by United States Customs in August 2004. Customs acted pursuant to the
II. Pretrial Motions.
As would be expected, the parties engaged in substantial pretrial motion practice. Fuji sought discovery access to Jazz-Benun’s counsel in
District Court
7/ITC II; that access was denied.
Fuji Photo Film Co., Ltd. v. Benun,
Trial exhibits were to be premarked and submitted pretrial; stipulations as to exhibits and facts were to be the subject of counsels’ conferences in the days leading up to trial. Unfortunately, while exhibits generally were duly marked and submitted, essentially no stipulations were developed as to exhibits or facts (either because time ran out, or entrenched positions re-fleeting the bitterness of long-fought matters prevailed, or a combination of these causes).
The prospect of a long trial (where no quarter would be given by either side) became clear. Last minute maneuvering by the parties included (among other efforts): Fuji’s abandonment of some of its substantive claims; 8 Fuji’s limitation of its infringement damage claim to the outside date of December 12, 2003; 9 Fuji’s motion to limit (and foreclose) court consideration of the CIT Case and its Federal Circuit affirmance (based upon the December 12, 2003 damage cutoff, since the CIT Case dealt with LFFP shipments in August 2004); Benun’s motion to limit (i.e., foreclose) Fuji’s reliance on the testimony of a proposed witness, Bilka; 10 and, an extension of the continuum of motions (starting with the unmatured summary judgment motions and running through trial threshold motion practice) seeking to limit the scope of trial based upon various concepts of preclusion.
Fuji’s self-imposed limitations were not objected to; its effort to have this court disregard the CIT Case were generally unsuccessful;
11
and, the Bilka testimony
III. Scope of Trial.
District Court I provides a clear line of demarcation for matters remaining in dispute sub judice. Debts of Jazz/Benun (for established “injury” to Fuji) are unambiguously defined as those damages liquidated by the now-affirmed judgment. Thus, Benun’s debt (hereinafter “Tranche I Damages”) due Fuji for inducing infiingement is established for the 1995 through August 21, 2001 period.
Fuji
claims
14
against Benun arising in the post-August 21, 2001 period run through the December 12, 2003 cutoff date (hereinafter “Tranche II Alleged Damages”). Though ITC II, through the Administrative Law Judge’s opinion of April 6, 2004 (covering approximately 150 pages), is the basis for a
penalty assessment,
neither the ITC nor any court has reduced
Fuji’s claim
in Tranche II to judgment in Fuji’s favor and against Ben-un. In fact, through this adversary proceeding, Fuji has of necessity sought to reduce its claims to liquidated debt status for Tranche II,
15
and
seeks a determina
The scope of this trial has thus been impacted by issue preclusion and/or the persuasive or advisory effect of District Court I and ITC II — each having fully addressed questions of infringement (District Court I as to Tranche I and ITC II as to Tranche II).
A. Tranche I (1995 through August 21, 2001).
1. District Court I Judgment.
ITC I, prompted by Fuji, named twenty-seven respondents including Jazz. The list of “unlawful activities” contained in the operative statute, § 387 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1337 (“ § 337”) includes “[t]he importation into the United States [and] ... sale ... after importation ... of articles that ... infringe a valid and enforceable United States patent....” 19 U.S.C. § 1337. Fuji alleged that the twenty-seven respondents had infringed fifteen patents owned by Fuji relating to LFFPs. The Administrative Law Judge (“ALJ”), in his initial determination, found that twenty-six of the twenty-seven respondents, including Jazz, had violated § 337 by infringing Fuji’s patents. The ALJ recommended cease and desist orders against each of the domestic respondents and a general exclusion order against importing infringing LFFPs. The ITC adopted the recommendations of the ALJ, as well as the ALJ’s pertinent findings with respect to infringement in ITC I.
The ALJ had reasoned that the common activities of some of the respondents in refurbishing 16 the spent shells amounted to “effectively recreating the patented single use camera of [Fuji] and its licensees, and hence [was] impermissible reconstruction.” ITC I at 5. For the other respondents, the ALJ found that there was “insufficient information in the record about the processes employed by their suppliers [of LFFPs] ... [and thus] those respondents failed to carry their burden of proof....” Id. Thus, the affirmative defense of “repair” was denied twenty-six respondents and the Cease and Desist Order issued.
In Jazz’s appeal to the Federal Circuit, a stay of the ITC Cease and Desist Order was granted pending decision on the appeal. This was said to have been the first Federal Circuit stay of an ITC exclusion order pending appeal. Cases and Recent Developments, Patentee Exhausted Patent Rights By First Sale Of Cameras Sold In The U.S. For Single Use; Single Use Label Did Not Create Sufficient Restriction On Sale To Bring Sale Out Of Ambit Of Exhaustion, 11 Fed. Cir. B.J. 457, 525 (2001-02).
The ALJ, in his initial determination, had summarized the following common steps employed by the respondents to refurbish the spent shells, and had found the process to be “impermissible reconstruction”:
• removing the cardboard cover;
• opening the LFFP body (usually by cutting at least one weld);
• replacing the winding wheel or modifying the film cartridge to be inserted;
• resetting the film counter;
• replacing the battery in flash LFFPs;
• winding new film out of a canister onto a spool or into a roll;
• resealing the LFFP body using tape and/or glue;
• applying new cardboard cover.
The Commission adopted the ALJ’s findings and conclusions that the reman-ufacturers were not simply repairing an article for which either the producer or the purchaser expected a longer useful life, pointing out that the purchaser discarded the camera after use. The Commission ruled that the respondents were not simply repairing the LFFP in order to achieve its intended life span, but created a new single use camera that would again be discarded by its purchaser after use.
... [The] Supreme Court decisions which underlie precedent require that infringing reconstruction be a “second creation” of the patented article. Although the Commission deemed this requirement met by the “remanufactured” LFFPs, precedent places the acts of inserting new film and film container, resetting the film counter, and resealing the broken case — the principal steps performed by the remanufacturers — as more akin to repair.
Id. at 1105-06.
However, the Federal Circuit’s reversal of the Commission’s determination on the common eight steps did not fully vindicate the activities of all respondents. Indeed, the Federal Circuit affirmed the ITC’s finding of infringement with respect to all respondents (including Jazz) who had failed to provide sufficient evidence of their repair processes to show permissible repair. And, permissible repair, as an affirmative defense, had to be established by
both
the processing steps
and exhaustion of patent rights by lawful first sale in the United States. Id.
at 1105. The “first United States sale” requirement had not been raised before the ITC, and appears to have surprised the parties-in-interest.
See
Final Jury Instructions (hereinafter “Jury Instructions”) in
District Court I,
Docket Entry 143-2, Ex. A at No. 27(A) (“During ... this lawsuit, the court which supervises patent law cases has clarified the law in a way that none of the parties expected.... A little over a year ago, the supervising court announced the rule about shells first sold in the U.S_ [N]o one knew before that time the source of shells would be important .... ”);
see also District Court I,
ITC I faded away, but for the persistence of the Cease and Desist Order of 1999 (and other ancillary matters, including a Jazz bond forfeiture issue). See Ex. P-118A at p. 4 n. 4.
It is with the background of ITC I and Appeal I that, in District Court I, the jury reached the following verdict:
• Jazz infringed Fuji’s patents with respect to 39,889,850 of the 40,099,369 refurbished cameras sold by Jazz from 1995 through August 21, 2001;
• Jazz infringed Fuji’s patents with respect to 1,209,760 newly made cameras sold during this period;
• Mr. Benun induced Jazz Photo’s infringement with respect to 39,103,664 cameras;
• Defendants’ sale of newly-made cameras was willful, but their sale of refurbished cameras was not willful;
• A reasonable royalty for Jazz’s alleged infringement is 56 cents per infringing camera sold; and
• Fuji lost profits of $3,531,711.70 as a result of Jazz’s sales of refurbished cameras and $112,749.63 as a result of Jazz’s sales of newly-made cameras.
Pursuant to the parties’ stipulations, the District Court:
(1) determine[d] whether the factual refurbishment processes found by the jury constituted legally permissible repair or legally impermissible reconstruction; and (2) determine[d] the number of legally infringing cameras and applied] that number mathematically to the jury’s damages verdict in order to determine the total amount of damages to be awarded.
Id. at 441. Judgment was entered against Benun in the total amount of $22,919,783.60 (56$ per infringing camera, including both refurbished and the newly made Sesame Street™ cameras) plus prejudgment interest (of almost $7 million). Id. at 459. Benun’s Tranche I “injury” to Fuji property is thus established; however, the “willful” and “malicious” aspects of the § 523(a)(6) exception to discharge must be admeasured against issue preclusion and related concepts.
2. Issue Preclusion.
Issue preclusion (or, collateral estoppel) “prevents relitigation of a particular fact or legal issue that was litigated in an earlier action.”
Seborowski v. Pittsburgh Press Co.,
For a party to be estopped from relit-igating an issue, the following elements must be present: (1) the issue sought to be precluded must be the same as the one involved in the prior action; (2) the issue must have been actually litigated; (3) the issue must have been determined by a valid and final judgment; and (4) the determination must have been essential to the prior judgment.
Id. (citing In re Ross,
Did the willful infringement/non-willful infringement jury findings of
District Court I
involve the same issues now being presented to this court under
More specifically, to the extent that Benun was found by the jury to have committed
no willful
inducement to infringe in reloading used camera shells, it was decided that he acted neither intentionally, thus of necessity not injuring Fuji intentionally (the bankruptcy focus), nor recklessly; this finding would therefore meet the “same issue” general requisite of Restatement (Second) of Judgments § 27. The finding of
willful
infringement with respect to the newly molded 1,209,760 unit “Sesame Street™” order differs; that jury determination could well have been based upon a broader willfulness conception in patent law — which includes recklessness— rather than the more circumscribed bankruptcy law’s “willfulness.” As to the evolving standards for “willful” infringement,
see In re Seagate Technology, LLC,
Notwithstanding the apparent satisfaction of general issue preclusion rules by at least the nonwillful infringement finding (for refurbished LFFPs), issue preclusion “is subject to a number of equitable exceptions designed to assure that the doctrine is applied in a manner that will serve the twin goals of fairness and efficient use of private and public litigation resources.”
National R.R. Passenger Corp. (AMTRAK) v. Pa. P.U.C.,
The
District Court I
jury finding of
no willfulness
with respect to patent infringement for refurbishing LFFPs was based on a “clear and convincing” burden of persuasion.
See
Jury Instructions at No. 50. That same high standard was applied in the
willful
infringement finding as to the newly molded LFFPs.
Id.
Section 523 exceptions to bankruptcy discharge need only be proven by the less weighty preponderance standard.
Grogan,
While there is some precedent for overriding the burden differential issue preclusion exception of Restatement (Second) of Judgments § 28(4), 18 as will be set forth below, collateral estoppel need not be applied sub judice in order to establish Ben-un’s right to a discharge of-the nonwillful infringement aspect of the District Court I judgment. Rather, as to the largest part Tranche I damages (arising from nonwillful infringement for impermissibly reconstructing LFFPs, i.e., failing to establish the affirmative defense of repair), the jury finding in conjunction with various other factors has persuaded this court that the § 528(a)(6) exception to discharge cannot be proven by Fuji. 19
3. Factors Deemed Persuasive In Limiting the Scope of Trial.
(a) ‘Willful” As Defined in Bankruptcy and Patent Law.
“[B]ecause of bankruptcy’s underlying concern for affording a new beginning, statutory exceptions to discharge are generally construed ‘narrowly against the creditor and in favor of the debtor.’ ”
Boston Univ. v. Mehta (In re Mehta),
Section 523(a)(6) provides that a discharge does not relieve an individual of a debt “for willful and malicious injury by the debtor ... to the property of another entity.” The Supreme Court addressed the “willful” requirement as follows:
The word “willful” in (a)(6) modifies the word “injury,” indicating that nondis-chargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury. Had Congress meant to exempt debts resulting from unintentionally inflicted injuries, it might have described instead “willful acts that cause injury.” Or, Congress might have selected an additional word or words, i.e., “reckless” or “negligent,” to modify “injury.” Moreover, as the Eighth Circuit observed, the (a)(6) formulation triggers in the lawyer’s mind the category “intentional torts,” as distinguished from negligent or reckless torts. Intentional torts generally require that the actor intend “the consequences of an act,” not simply “the act itself.” Restatement (Second) of Torts § 8A, comment a, p. 15 (1964) (emphasis added).
Kawaauhau v. Geiger,
Since Geiger, Circuits have split over the extent to which the Supreme Court defined “willful.” The uncertainty on this issue stems from Geiger’s citation to the Restatement (SecoNd) of ToRts § 8A. In language not cited by the Supreme Court, but included in the same section, the Restatement encompasses in its definition of “intent” not only the situation in which the actor “desires” the consequences, but, in an alternative second prong, where the actor “believes that the consequences are substantially certain to result from [his act].” RESTATEMENT (SECOND) OF TORTS § 8A.
The Sixth Circuit found the Court’s analysis in
Geiger
to favor adoption of the unquoted Restatement language.
In re Markowitz,
The Fifth Circuit, while adopting the two-pronged test for willfulness, has held that the “substantially certain” prong is an
objective
test.
In re Miller,
Ultimately, taking the strongest cue from
Geiger,
this court would, if compelled, apply the subjective standard to both prongs of what should be the two-pronged willfulness definition for § 523(a)(6).
Contra, In re Pavlovskiy,
Notwithstanding some of the above-stated variation in the “willfulness” definition under the Bankruptcy Code, willfulness in the patent infringement context is clearly a
broader
concept. It includes
recklessness,
23
and therefore runs counter to
Geiger.
Before the Federal Circuit added definition to the repair defense for LFFPs, an entire marketplace was operating in the field. ITC I, initiated in 1998 (three years into the Jazz-Benun period of operation), cited twenty-seven refurbishers. The refurbishing of LFFPs was controversial— with the ITC finding it to be a patent violation on the basis of the inapplicability of the repair defense. This conclusion was reversed by the Federal Circuit (after questioning the ITC’s restrictive position by issuing a rare stay pending appeal of the Cease and .Desist Order). The law was thus unclear before August 21, 2001. (Indeed, as will be discussed infra, the law remains less than well defined.) Moreover, the first sale in the United States requirement announced by the Federal Circuit was acknowledged as being a complete surprise to the case participants.
Given this background, the prospect of this court finding subjective willfulness for exception-to-discharge purposes with regard to Tranche I (by a preponderance of the evidence rather than the clear and convincing standard applied by the jury in
District Court I)
in Benun’s inducement
25
of Jazz to infringe through refurbishing LFFPs, was unlikely.
Distinguish
the garden-variety § 523(a)(6) cases where infringement was clear and indefensible.
See In re Trantham,
(b) The Malice Requirement of § 523(a)(6).
Post-Geiger,
the “malicious injury” requirement of § 523(a)(6) has been described as follows: “A ‘malicious’ injury involves ‘(1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or
As with willfulness, the Third Circuit has not since
Geiger
formally considered the definition of malice under § 523(a)(6).
In re Conte
remains the most recent Third Circuit precedential case involving § 523(a)(6); there the Court defined the requirement for a malicious injury as one which is “wrongful and without just cause or excuse, even in the absence of personal hatred, spite or ill-will.”
Yet Benun’s activities relative to camera refurbishment were not without at least the color of “excuse,” though not ultimately found to have been a function of “just cause.”
26
Before August 21, 2001, the first sale in the United States requirement was unanticipated by all parties-in-interest,
and
the process of repair of LFFPs (as distinguished from reconstruction) was undefined. While this state of the law has not served as a defense to the reloading aspect of the patent infringement claim of Fuji (i.e., has not established “just cause” for infringement), excuse
sub judice
(by mistake or otherwise,
even when tested by
(c) District Court Refusal to Enhance Damages and the Federal Circuit’s Comments in Appeal II.
Judge Hochberg in
District Court I
noted that “[t]he paramount consideration in determining whether to award enhanced damages is ‘the egregiousness of the defendant’s conduct based on all the facts and circumstances.’ ”
Fuji adduced no direct evidence at trial that any Defendant had actual knowledge that any supplier was providing Jazz with cameras refurbished from newly-made shells, but rather relied upon an inference arising out of the fact that the cameras were sold and the credibility of Mr. Benun....
Id. (emphasis added).
On appeal, Fuji asserted that the District Court abused its discretion “in refusing to enhance damages for the
refurbished
LFFPs” (emphasis in original).
Fuji has narrowly tailored its enhanced damages cross-appeal to contest damages accruing from Jazz’s infringing sales between 1999 and 2001. As Fuji itself points out, the district court did not address the refurbished LFFP sales in its enhanced damages analysis, most likely because the jury did not find these sales willful. Rather, the district court considered the newly-made LFFP sales that the jury deemed willful infringement. While Fuji complains that the district court failed in its analysis, it does not point to any support in the record where it either requested the district court to consider the ITC determination in the enhanced damages inquiry or, in the alternative, to reconsider the jury finding that the refurbished LFFP sales were not willful.
Id. at 1379-80 (emphasis added).
This court is influenced by (i) the jury’s finding of an absence of willful behavior by Benun in participating in the refurbishing of LFFPs, (ii) Fuji’s failure to challenge that jury finding at the trial level, or to raise the issue on appeal, (iii) the Federal Circuit’s ease in linking that finding to the absence of consideration of damage enhancement as to refurbishment, and (iv) the District Court’s undisturbed conclusion
(d) The Repair Defense.
Benun and Jazz’s affirmative defense of repair in District Court I met with only very limited success. As to the “repair versus reconstruction” processing issue, Jazz actually proved its case for three of the eight Chinese factories doing its LFFP refurbishment work. 28 Only 4,009,937 of the nearly forty million LFFPs at issue were proven to have been repaired. Jazz did not see fit to present trial testimony as to the balance of the factories’ procedures. 29
The exhaustion by first United States sale component of Jazz’s repair affirmative defense was divined by the jury to be 9.5% of Jazz’s sales. By calculating the “intersection” of the two-component jury findings, Jazz (and Benun) were given “credit” by way of their affirmative defense for only 380,944 refurbished LFFPs. The balance of the forty-million cameras was the basis for judgment entered against the defendants in District Court I.
Jazz/Benun were found to have not carried their burden of proving the repair affirmative defense as to the vast majority of the LFFPs refurbished and sold between 1995 and August 21, 2001. However, (i) the complexity of the law here, (ii) the “surprise” aspect of the first sale in the United States requirement, and (iii) proof of processing requirements for three of the eight Chinese factories supplying Jazz LFFPs, are factors militating against a conclusion of “willful and malicious” injury to Fuji in Tranche I.
4. This Court’s Review of Pretrial Submissions.
Trial obstacles in this case included: the period of time covered by the claims (1995 to August 21, 2001, and then forward to December 12, 2003); the complexity of the patent issues; and the litigation and enforcement history (through ITC, District Court, Bankruptcy Court and CIT tracks).
Fuji’s proposed direct case, reviewed by this court to determine the scope of trial as hearings were to begin, added nothing to the proof of Benun’s alleged “willful and malicious” conduct in refurbishing LFFPs, up to August 21, 2001. Thus, a repetition of large segments of the District Court I trial, concluded in March 2003 after weeks of exhaustive hearings (covering the six-year period ending August 2001), would be contrary to the fair and efficient administration of justice. The jury — albeit applying a higher standard of proof — found Benun’s conduct in inducing infringement through LFFP refurbishment, to be not willful (i.e., neither willful in bankruptcy terms nor even reckless in patent terms). Fuji’s submissions, read in a light most favorable to Fuji, did not add to its case as to Benun’s state of mind on the Tranche I injury due to refurbishment.
5. Conclusion — Scope of Trial of Tranche I Issues.
This court concluded at trial outset that a retrial of Tranche I injury due to refurbishment of LFFPs would not serve the ends of justice. The jury finding of “no willfulness” in
District Court I,
augmented by the District Court’s refusal to enhance damages (even as to Benun’s willful behavior),
Appeal II’s
ready linkage of the non-willfulness finding to obviate damage enhancement, the breadth of the patent law in this area (i.e., that Benun was not even found to be reckless as to LFFP refurbishment), the broad commercial practice of shell refurbishing ongoing in the marketplace (twenty-seven entities originally named in ITC I), and the complex and unsettled state of the affirmative defense of repair before August of 2001,
30
were substantially persuasive as to limiting the scope of trial. In conjunction with the aforestated persuasive factors, a review of Fuji’s case as presented in writing convinced this court that Fuji could not prove by a preponderance of the evidence that Benun willfully and maliciously injured Fuji by refurbishing LFFPs in Tranche I.
31
This effectively provided Benun with a partial summary judgment on the first day
B. Tranche II (August 21, 2001 to December 12, 2003) Issue Preclusion.
Fuji has contended that ITC II, finding infringement by Jazz and inducement to infringe by Benun (as well as bad faith in the violation of the longstanding Cease and Desist Order), should be given certain pre-clusive effect sub judice. Of course, the $13 million penalty assessed by the ITC enures to the benefit of the United States (not Fuji), so that there has been no liquidation of Jazz/Benun debt to Fuji in ITC II. Nevertheless, Fuji contends that certain “building block” determinations of the ITC should be adopted by this court.
Broadly, it is established that ITC decisions with respect to patent issues should have no claim or issue preclusive effect in later district court litigation. The legislative history of the Trade Reform Act of 1974 supports this view as follows:
The Commission is not, of course, empowered under existing law to set aside a patent as being invalid or to render it unenforceable, and the extent of the Commission’s authority under this bill is to take into consideration such defenses and to make findings thereon for the purposes of determining whether section 337 is being violated.
... In patent-based cases, the Commission considers, for its own purposes under section 337, the status of imports with respect to the claims of U.S. patents. The Commission’s findings neither purport to be, nor can they be, regarded as binding interpretations of the U.S. patent laws in particular factual contexts. Therefore, it seems clear that any disposition of a Commission action by a Federal Court should not have a res judicata or collateral estoppel effect in cases before such courts.
S. Rep. NO. 93-1298 at 196 (1974)
as reprinted in
1974 U.S.C.C.A.N. 7186, 7329. Indeed, “the ITC takes the position that its decisions have no
res judicata
effect in [district court] litigation.”
Corning Glass Works v. United States Int’l Trade Comm’n,
Given the jurisdictional limitations on the relief available in the ITC, the Federal Circuit has long held that a prior ITC decision cannot have patent claim preclu-sive or patent issue preclusive effect in the district court.
Bio-Technology Gen. Corp. v. Genentech, Inc.,
Plaintiffs urged this Court to adopt the position advanced by Judge Longobardi of the District Court of Delaware in In re Convertible Rowing Exerciser Patent Litigation,814 F.Supp. 1197 (D.Del.1993). Judge Longobardi held that while the Federal Circuit has decided that legal findings rendered by the ITC do not carry a preclusive effect, the same cannot be said of factual findings. Id. at 1204-05. This Court does not concur with this view. The decision in Convertible Rowing preceded Texas Instruments. The Federal Circuit in Texas Instruments had ample opportunity to distinguish between a factual or legal preclusive effect and did not do so. Nor is the analysis in Texas Instruments limited to legal findings. Consequently, this Court declines to follow Convertible Rowing and instead affords both the factual and legal findings of the ITC and the appeal thereof persuasive value only. Cf. Minnesota Mining and Manufacturing v. Beautone Specialties Co., Ltd.,117 F.Supp.2d 72 (D.Mass.1999) (distinguishing Convertible Rowing as outdated and hinting that Convertible Ruling was effectively overturned by Texas Instruments).
Fuji Photo Film Co. v. Jazz Photo Corp.,
This court agrees with Judge Hochberg, that neither legal determinations nor factual findings of the ITC can serve as a basis for issue preclusion. Nevertheless, there remains the question of whether and to what extent this court should consider ITC II, which fully litigated at least the patent infringement issues in Tranche II. The Federal Circuit has provided some guidance here.
[O]nce we accept, as we have done at least since 1986, that ITC decisions are not binding on district courts in subsequent cases brought before them, it necessarily follows that accused infringers can raise whatever defenses they believe are justified, regardless whether they previously raised them and lost in the ITC. The district court can attribute whatever persuasive value to the prior ITC decision that it considers justified. And we, on appeal, must be free to thoroughly review the district court’s decision. As a court we are bound to follow our own precedents, and, to the extent that we have previously ruled on a matter, a subsequent panel will have powerful incentives not to deviate from that prior holding, short of thoroughly justified grounds.
Texas Instruments, Inc. v. Cypress Semiconductor Corp.,
This court thus concluded (again, immediately before trial) that Tranche II claims would have to be proven fully by Fuji. However, while the findings and determinations of ITC II are not preclusive, they would be considered by this court. This is particularly the case because of the ITC’s expertise in the area of patent law, its familiarity with the LFFPs refurbishment issues, and the detailed opinion rendered in ITC II. As will be discussed hereinafter, consideration of the “persuasive value” of ITC II has substantially impacted on this trial, most plainly as to evidentiary rulings. Moreover, at approximately the midpoint of the trial period (January 11, 2007), the Federal Circuit affirmed much (but not all) of ITC II.
As a result of the threshold determination of this court, the issues remaining for trial were established as:
(i) The Tranche I state of mind of Ben-un (whether Benun was “willful and malicious”) in his participation in the sale of 1,209,760 newly molded LFFPs; and
(ii) The full array of Fuji’s Tranche II claims, i.e., whether Jazz/Benun “injured” Fuji by infringing 33 while not establishing the repair affirmative defense; if such injury be proven, the damages attributable to same; and whether such injury — if any— was “willful and malicious” in accordance with § 523(a)(6) so as to render all or any part of any damage award adjudged herein excepted from the bankruptcy discharge. 34
These issues will be dealt with in reverse order, as fully set forth below. 35
IV. Tranche II (August 21, 2001 to December 12, 2003): Claims of Patent Infringement, Inducement to Infringe, and Willful and Malicious Injury to Property per § 523(a)(6).
A. Evidence Issues.
In order to understand and evaluate the persuasive effect of ITC II, this court con-eluded that evidence admitted in ITC II should be liberally admitted in this proceeding. Accepting same into evidence was not automatic for the ITC II exhibits, but they were given the equivalent of a rebuttable presumption of admissibility. This was particularly the case since Benun (who was the party generally on the “receiving end” of Fuji’s-offered ITC II exhibits at trial here) had the opportunity to review and contest them in ITC II. See, e.g., 7/26/06 Tr. at 89:20-97:23; 7/27/06 Tr. at 134:15-138:1.
B. Process of Refurbishing LFFPs.
1. Effort to Establish a Standard for Permissible Repair Processing.
With the benefit of Appeal III, permissible repair processing for LFFPs becomes somewhat clearer. However, even today it is not a model of clarity. An original “eight-step” program was identified by the ALJ as common processing among the twenty-seven remanufacturers targeted in ITC I. In fact, the Commission rejected (incorrectly as it turned out) that eight-step process, thus as a practical matter denying the concept of permissible repair for LFFPs in ITC I. 36
1) [R]emoving the cardboard cover; 2) opening the LFFP body; 3) replacing the winding wheel or modifying the film cartridge to be inserted; 4) resetting the film counter; 5) replacing the battery in flash LFFPs; 6) winding new film out of a canister onto a spool or into a roll; 7) resealing the LFFP body using tape and/or glue; 8) applying a new cardboard cover.
The eight-step processing was no magic or immutable formulation. 37 Indeed, an extended nineteen-step process (defined by Jazz in ITC II as its refurbishing technique) was sanctioned and approved in Appeal III. The nineteen steps were:
1) [Tjesting the battery; 2) breaking the weld so that the camera can be opened; 3) opening the camera’s back; 4) disengaging the film advance disabling mechanism; 5) inserting the battery in the camera; 6) cleaning the viewfinder and taking lens; 7) testing the flash; 8) resetting the film counter; 9) inserting the film cartridge and securing the back closed; 10) applying black tape to areas where potential light leakage may occur; 11) inserting a “slider” to allow film to be reloaded with its back cover closed; 12) inserting a small rod to prevent errant pictures from being taken during refurbishing; 13) inserting a film winding shaft into the film roll chamber; 14) unwinding the film out of the film cartridge and into the film roll; 15) disconnecting the film winding shaft; 16) closing the film access door and applying black tape thereto; 17) applying additional black tape to areas where potential light leakage may occur; 18) testing the film advance and flash; and 19) placing the outer cardboard packaging onto the LFFP.
Fuji, obviously disquieted by the very thought of repair being permissible, would have every variant from the
Appeal I
eight-step process struck down. In
Appeal III,
for example, Fuji argued “that Kodak LFFPs that received
partial new backs
and LFFPs that were refurbished
without spools
should have been found to be infringing.”
[C]ontrary to Fuji’s assertion, our original decision in [Appeal 7] did not limit the scope of permissible repair to the eight common steps it considered; rather we did not reach the question of what other activities constituted permissible repair.... On appeal in this case, the Commission and Benun agree that the eight step refurbishment discussed in [Appeal /] and the nineteen step refurbishment described in the Commission order here both involve permissible repair. The question then [answered by the Court in the negative] is whether one additional action by Jazz, the addition of a new plastic back cover, converts the activity into impermissible reconstruction.
Scouring
Appeal I
for examples of nonconforming refurbishing processes is unavailing: the only clearly specified offending respondent in ITC I (noted by the Federal Circuit at a key point in its opinion summary), had not refurbished at all, but rather had admitted “building new LFFP cameras in China.”
The Commission’s ruling of reconstruction was based on the acknowledged general activities of the remanufactur-ers, and thus did not require evidence of whether any specific additional procedures were performed, for such evidence would not have affected the Commission’s ruling. However, a ruling of repair can not be open-ended, for there is undoubtedly a stage at which permissible repair becomes prohibited reconstruction. We can not exculpate unknown processes from the charge of infringing reconstruction.
The Court has cautioned against reliance on any specific set of “factors” in distinguishing permissible from prohibited activities, stating in Aro Manufacturing that “While there is language in some lower court opinions indicating that ‘repair’ or ‘reconstruction’ depends on a number of factors, it is significant that each of the three cases of this Court, cited for that proposition, holds that a license to use a patented combination includes the right ‘to preserve its fitness for use....’”365 U.S. at 345 ,81 S.Ct. 599 ,5 L.Ed.2d 592 . Indeed, thiscriterion is the common thread in precedent, requiring consideration of the remaining useful capacity of the article, and the nature and role of the replaced parts in achieving that useful capacity. The appellants stress that all of the original components of the LFFP except the film and battery have a useful remaining life, and are reused. The appellants state that but for the exposed roll of film and its container, any portion of the case that was broken by the photo processor, and the winding wheel in certain cameras, the refurbished LFFP is substantially the original camera, for which the patent right has been exhausted.
In summing up the state of permitted and impermissible LFFP remanufacturing processing to this point, the following appear to be established:
(i) The methodology by which LFFP shells are dissembled, refilled with new film and battery in place of the obviously spent original film and battery, is broadly permitted (whether in eight or nineteen steps or other variations of obvious and commonsensical techniques 39 );
(ii) Building new cameras (presumably by assembling all, or perhaps substantially all or major newly molded piece parts) is plainly outside repair and the permitted repair defense;
(in) Replacing certain piece parts (presumably with newly molded components, as well as salvaged parts) is permitted at least where the concept of “spent parts” applies 40 ; and
(iv) Replacement of spent parts (e.g., partial or full back LFFP covers), even if they are “essential” or “distinguishing” 41 nonpatented components of a patentable assembly, remains within the ambit of permissible repair (at least where “the extent of the refurbishment is [not] disproportionate to the overall value of the parts ... not replaced.” 42 ).
2. Proof Required to Establish “Permissible Repair” Process.
Giving only inklings of substance, Appeal I foretells the future for potential case-by-case (i.e., process-by-process) hearings.
Thus our reversal of the Commission’s decision does not apply to LFFPs from those remanufacturing facilities for which discovery was refused or where the evidence offered was found incomplete or not credible by the ALJ. For those respondents’ activities that were shown to be limited to those steps considered by the ALJ ... we conclude that these activities constitute permissible repair. For those respondents who refused to provide discovery or access, or proffered incomplete or “bench” evidence (a partial display created for litigation purposes), or presented testimony that the ALJ found to be not credible or inadequate, it can not be determined from the record whether their remanu-facturing activities are limited to those considered by the ALJ and on which our ruling of permissible repair is based. For those respondents, the record contains insufficient basis on which to reverse the Commission’s rulings.
This same passage is quoted in ITC II as a precursor to concluding that there was a “lack of complete and credible information verifying the LFFP refurbishing processes at many of Jazz’s supplier factories.” Ex. P-118A at 78-79 (emphasis added). 43
Unanswered (and starkly so, now with the benefit of history), is the question: what in the reloading process would be other than “permissible repair”?
As processes for permissible repair have been reviewed by the Federal Circuit in
Appeals I, II,
and
III
and the
CIT Appeal,
the acceptability of a broad range of refurbishing has developed (see Point IV.B.l
supra).
Fuji-driven concepts (some accepted by the ITC), including: no repair permitted at all; no repair permitted beyond the orthodoxy of a precise eight-step process; and no remolding of spent parts (such as partial or full camera backs),
have all been debunked.
Short of completely remolding the entire camera or at a minimum, the camera shell, or, as hinted by the Federal Circuit, adding spent parts of such cost or value as to exceed the worth of the parts not replaced, or
perhaps
add
LFFP reloading presents no engineering or developmental mystery. “Permissible repair” of LFFPs has now extended acceptable processing to a point short only of remolding the shells or replacing major and expensive components of the LFFP’s works. This extension is a
substantive
countercurrent to the concept of any embellished proof standard advocated by Fuji, i.e., imposition of a “verification” additive to the norm of trial court evaluation of evidence’s probativity.
See, e.g., District Court I,
3. Determination as to Processing.
The declarations of witnesses Szeto, Za-wodny and Benun support Jazz’s Tranche II period compliance with Federal Circuit refurbishment requirements, 44 as those requirements have been clarified to date. This is especially the case, given that no magic formula for such processing is required, “spent parts” (such as partial and full camera backs) may be replaced, with newly molded parts, and the reloading process is obvious.
Szeto, Jazz Hong Kong’s managing officer, declared fully and comprehensively that supply factories in the Tranche II period complied with Federal Circuit processing requirements. Her declarations (Exs. D-C and Y) include, in part and by way of example, the following:
Prior to the Federal Circuit Opinion, I visited many repair factories that were supplying refurbished single-use cameras to Jazz H.K., including, but not limited to, Vastfame, Ginfax, which was referred to as Leader Peak, Boshi and Company, Ltd., and Penji Jiarui Photoe-lectricity Company Limited, which was often referred to as Peji, and observed the production processes at those factories. In fact, the general practice for Jazz H.K. was to visit the vendor’s factory and observe the refurbishment processes before committing to the purchase. Between 1995 and 2000, I paid regular visits to each of the repair factories at least four (4) or five (5) times per year. (Ex. D-C ¶ 11.)
In fact, based upon my observations while visiting the repair factories, I was advised that I was going to testify at trial at the patent infringement action brought against Jazz, Jazz H.K. and Jack Benun by Fuji in the United States District Court for the District of New Jersey. I was present at trial and prepared to testify but was never called to testify by Jazz’s counsel. (Ex. D-C ¶ 12.)
Subsequent to the Federal Circuit Opinion, at the direction of Jazz and Jack Benun, Jazz H.K. limited its single-use camera purchases to fewer repair factories. I was advised that this was done to ensure that Jazz could monitor and control all of the repair factories from which it acquired single-use cameras, to ensure that the repair factories permissibly repaired the single-use cameras. (Ex. D-C ¶ 13.)
... [Ajfter August 2001, I began to personally inspect the repair factories on a more frequent basis to ensure compliance with the processes outlined in the Federal Circuit Opinion. I am fully familiar with these processes, which I observed at the repair factories on a regular basis. I also sent Jazz H.K. employees to visit the repair factories on a constant basis to review and approve their processes. (Ex. D-C ¶ 20.)
Beginning in late 2001, Jazz also had certain of its employees spend significant amounts of time at the repair factories to observe the repair processes. I recall that at some point beginning in 2002 or 2003, Eli Shoer and Michal Za-wodny, Jazz employees, began to visit certain of the repair factories on a regular basis. (Ex. D-C ¶ 22.)
... [A]fter the United States Court of Appeals for the Federal Circuit issued its opinion in August 2001 (the “Federal Circuit Opinion”), I began to communicate with and personally inspect the Repair Factories on a more frequent basis to ensure compliance with the repair processes outlined in the Federal Circuit Opinion. I am fully familiar with these repair processes, which I observed at the Repair Factories many times. After August 2001, I also sent Jazz H.K. employees to visit the Repair Factories on a constant basis to review and approve the Repair Factories’ repair processes. (Ex. D-Y ¶ 4.)
Although the repair processes at the different Repair Factories differed slightly, I personally observed workers employed at all of the Repair Factories that ultimately supplied Jazz with refurbished single-use cameras utilizing some or all of the following processes:
a. removing the existing sticker and/or existing -wrapper if still attached;
b. opening the plastic shell casing;
c. cleaning the camera shell and camera lens;
d. replacement of the winding wheel for certain single-use cameras;
e. replacement of the battery for flash single-use cameras;
f. testing the camera functionality;
g. resetting the counter;
h. inserting new film into the camera shell and unwinding the film;
i. closing the back cover and resealing the outer case, usually with black light-tight tape; and
j. a. adding a new cardboard wrapper. (Ex. D-Y ¶ 5.)
During my visits to the Repair Factories, I never observed the refurbishment and reloading of Jazz’s single-use camera shells that included any replacement of internal components of camera shells, such as capacitors, circuit boards, shutters, main bodies or flash tubes. (Ex. D-Y ¶ 7.)
Ms. Szeto’s testimony as to her personal observations of the factory work in China, and processing requirements generally, supported her declarations and is credible. See, e.g., 3/27/07 Tr. 8:19-18:15; 3/28/07 Tr. 71:24-73:19. Fuji’s efforts to impeach this witness on this subject, in part veering off into Fuji’s allegation that it was allowed to visit only certain Jazz suppliers, more presses its verification thesis than directly contests Szeto’s declarations and testimony. Moreover, Fuji’s heavily relied upon and long-serving expert witness, Mr. Bellows, 45 did not effectively put in issue either the Szeto testimony regarding process, nor (most critically) Jazz’s permissible repair of LFFPs. In fact, notwithstanding Bellows’ protracted testimony commenting on videos and sample cameras, he did not in any respect opine that Jazz’s product (other than the Sesame Street™ order) included newly molded shells, newly made major components, nor that any video showed a process that was an impermissible repair (i.e., “reconstruction”). 46
Likewise, this court’s observation of all physical exhibits and every video, whether presented in defense or offered by Fuji to discredit Benun’s affirmative defense, failed to disclose any evidence of impermissible processing, other than as to newly molded Sesame
Street™
shells.
47
All
Zawodny, the Jazz quality control manager, supported repair processing via declarations (Exs. D-G and W). The following declaration statements evidence that support:
While employed at Jazz [1999 until March 2005], I oversaw quality control for Jazz. My duties [among fifteen specified functions] were to ... oversee the procedures that the repair factories used to produce single-use cameras for Jazz.... (Ex. D-G ¶ 3.)
Between 1999, when I began working for Jazz, until the end of 2002, I visited many of Jazz’s single-use camera repair factories. During my visits to these repair factories, I observed the repair processes that were used to refurbish the single-use cameras that were purchased by Jazz. (Ex. D-G ¶ 5.)
My visits to the repair factories increased in 2008. (Ex. D-G ¶ 7.)
In early 2003, Jazz began purchasing refurbished single-use cameras from Po-lytech Enterprises, Ltd. (“Polytech”). By early to mid-2003, Jazz had phased out many of its repair factories. During 2003, Everbest, Jinshi and Polytech were the only repair factories that supplied Jazz with its single-use cameras. (Ex. D-G ¶ 8.)
When I visited the Everbest, Jinshi and Polytech repair factories in spring 2003, I videotaped the processes that I observed, which videotapes were later used in the ITC Enforcement Proceeding II litigation with Fuji. (Ex. D-G ¶ 9.)
By late 2003, Jazz had phased out the Everbest and Jinshi repair factories, leaving Polytech as Jazz’s sole source of refurbished single-use cameras. (Ex. D-G ¶ 10.)
I, along with Eli Shoer, were the people at Jazz who were primarily responsible for ensuring that Polytech complied with the repair processes that had been approved by the Court of Appeals for the Federal Circuit (the “Federal Circuit”) in its August 21, 2001 Opinion (the “Federal Circuit Opinion”). (Ex. D-G ¶ 12.)
Beginning in or about February 2003, or shortly before Polytech began to supply Jazz with single-use cameras, Eli Shoer and I began to visit Polytech’s repair factory on a regular basis to instruct and train Polytech’s staff on the repair processes that they were to employ in producing single-use cameras for Jazz. This training continued until May 2003. (Ex. D-G ¶ 13.)
Thereafter, I personally observed Po-lytech’s repair processes on a regular basis to ensure that Polytech complied with the repair processes mandated by the Federal Circuit in the Federal Circuit Opinion. (Ex. D-G ¶ 14.)
The workers employed at all of Jazz’s single-use camera repair factories implemented repair processes between 1999 and December 2003 that I observed in connection with Jazz’s refurbished single-use cameras, which included some or all of the following processes:
a. removing the existing sticker and/or existing wrapper if still attached;
b. opening the plastic shell casing;
c. cleaning the camera shell and camera lens;
d. replacement of the winding wheel for certain single-use cameras;
e. replacement of the battery for flash single-use cameras;
f. testing the camera functionality;
g. resetting the counter;
h. inserting new film into the camera shell and unwinding the film;
i. closing the back cover and resealing the outer case, usually with black light-tight tape; and
j. adding a new cardboard wrapper. (Ex. D-W ¶ 4.)
During my visits to the repair factories, I never witnessed the refurbishment and reloading of Jazz’s single-use camera shells that included any replacement of internal components of camera shells, such as capacitors, circuit boards, shutters, main bodies or flash tubes. (Ex. D-W ¶ 5.)
Mr. Zawodny’s 2003 videos of the Ever-best, Jinshi and Polytech factories support the process aspect of a “permissible repair” defense. See Ex. D-28 series. He plainly (and, in this court’s view, credibly) testified that the repair processes depicted in the Everbest factory video (Ex. D-28C) were “very similar” to those employed in other Jazz supply factories in the Tranche II era. 12/5/06 Tr. 55:22. Again, this series of three videos has solidified this court’s view that LFFP reloading was most commonsensically done at Jazz supply factories in a manner comporting with Federal Circuit “repair” concepts. Though differences in processing persisted, the range of assembly-line techniques emphasized by Fuji through Bellows’ testimony was simply variations on the same repair theme. 48
Benun declared that Jazz was “comforted” by Appeal I, and “continued to refurbish and reload Fuji single-use cameras within the eight (8) common steps of repair-” Ex. D-I ¶32. Benun further declared that he personally visited factories in China between August 2001 and late 2004 “to ensure compliance with the Federal Circuit Decision.” Id. at ¶ 42. Benun testified consistently with his declaration. 49 Of course, compliance with such a relatively undefined and evolving standard kept everyone guessing about process. 50
Nothing in the testimony of rebuttal witnesses or on cross-examination of Szeto, Zawodny or Benun has, in this court’s
Videos presented (by Benun and Fuji) have not rebutted the Benun position. Rather, the videos have solidified this court’s opinion that reloading LFFPs is a straightforward process (which could have many variations without becoming “reconstruction” of the camera), and, all videos viewed by this court demonstrate “repair.” Similarly, the court has reviewed physical exhibits (including various refurbished LFFPs) both in conjunction with plaintiffs’ witnesses’ testimony and independently, and finds no evidence of a process employed by Jazz in the Tranche II period that would be other than “repair.”
Fuji has not offered any evidence that “reconstruction” occurred in the Tranche II period.
In sum, not a single frame of any video viewed by this court, nor any examination of reloaded “off the shelf’ cameras or used shells, nor any testimony from either side, has even hinted at: (i) any remolding of camera bodies (as was the case with the 1998 Sesame Street™ order); (ii) wholesale replacement of camera mechanisms and electronics; or (iii) actual replacement of more than film, batteries, and some broken camera “entry doors” (partial or full backs). This court’s observation of witnesses, camera shells, refurbished cameras, documents, and videos— as well as careful assessments of counsel’s extended argumentation — leads this court to conclude that the preponderance of the evidence establishes that Jazz’s LFFPs were “repaired,” not “reconstructed” in the Tranche II period. 51
C. First Sale Requirement.
The first United States sale requirement for patent exhaustion in the LFFP repair defense, announced by the Federal Circuit in 2001, was a complete surprise to participants in ITC I and most observers. The camera shells to be reloaded by Jazz must first have been sold in the United States by Fuji or its licensee in order to qualify Jazz for the repair affirmative defense.
Very much after the fact, Benun offers a partial defense of first sale by reviewing the actions of its main shell supplier, Ken Haase (and his various enterprises) in a loosely stated 1999 to 2001 period. In sum, this court finds no convincing evidence that the Haase supply
to Jazz
was comprised in any significant part of shells
derived from cameras
first sold in the United States by Fuji or its licensees. Nor does this court find persuasive the Benun argument that Fuji’s shell exchange with Haase (or Fuji’s licensee’s exchange program with him) resulted in significant
Jazz and Benun, however, did respond immediately and contemporaneously to the surprise Federal Circuit requirement by adopting and/or regenerating the “Informed Compliance Program” (“ICP”), a tracking system for acquired shells. 53 Through testimony and documentary evidence, 54 the intricacy and breadth of that program were clearly established. This court finds that the ICP was intended to satisfy the first sale requirement, was at least at outset believed by Benun and others at Jazz to have largely (but not totally) satisfied “first sale,” and was substantially more than a mere formalism adopted to give the aura of compliance (as Fuji would portray it).
The ALJ in ITC II gave the ICP short shrift. He felt it was disorganized and incomplete. Moreover, though it tracked shell collection exclusively from United States suppliers, it did not assure that first camera sales (by Fuji or its licensees) were in the United States. Ex. P-118A 28-35, 114. The CIT trial judge, however, credited the ICP as part of a post-2003 enhanced system of first sale assurance. 55
This court’s evaluation of the ICP in the Tranche II period gives it mixed reviews.
Conceptually,
and to a certain degree in practice, the ICP had substantially more merit than the ALJ allowed. In its flowchart workings, the ICP embodied the mechanics to track shells from the United States point of collection to shipment to Asia, then to and through supply factories, and back to the United States as reloaded cameras. To the extent that domestic photoprocessors were the source of LFFP shells, there is a common sense connection between the processor and the sale of the disposable camera (at least in the absence of marketplace aberrations). The CIT identified this linkage.
CIT Trial,
The ICP, of course, was not a perfect filter. Previously reloaded cameras once again recycled (“reloads of reloads”) were a persisting (and in this court’s view, known) problem,
57
as was the possible (though very limited) contamination of domestic sales by tourist cameras (purchased abroad and brought to the United States for development). Most significantly to this court was the potential post-August 2001 evolving contaminant of market arbitraging in shells (i.e., importing shells based upon the rise in demand and price for ostensibly “domestic” camera bodies
58
). In the
CIT trial,
it was made clear that
after
2003, Jazz instituted an inspection process at the Polytech factory in Hong Kong (by that time it’s sole source of reloading); beginning in 2004 sorting was initiated in which both previously reloaded shells
and
shells with foreign language wrappers were culled out of the Jazz reloading process (at least to the extent that Jazz would market LFFPs in this country). These two enhancements in Jazz shell processing were deemed important by the CIT in its decision that Jazz had, to the extent set forth therein, satisfied the first United States sale requirement.
Beyond the merit or lack of merit of the system in concept, the ICP was flawed in practice. There was a degree of disorganization surrounding the program, as well as some deficiency or lag in documentation, all as referenced in ITC II.
See
Ex. P-118A at 28-32; Ex. P-176; Ex. P-222-1; Exs. P-400-423. The purported integrity of the ICP was thus, to a certain extent, undercut by internal documentation glitches. Given the volume of the paper flow required by the ICP, the Fuji demonstration of system file problems did not, in this court’s view, completely discredit the ICP. More telling to this court in terms of absence of documentation of “first sale” was the inability of Benun or Jazz’s primary shell collector, PRE, to produce at trial the
With the dramatic run up in domestic shell prices (from about 40<t to 70(f) after the August 21, 2001 decision of the Federal Circuit announcing the first sale requirement, “arbitrage” in shells should have been anticipated at some point, notwithstanding full implementation of the ICP. Transshipping of containers of foreign shells (at approximately 4<f per shell, 5/9/07 Tr. 158:1-6) suddenly made economic sense if they could be palmed off as derived from domestic cameras. A paper tracking system (even if the documentation were impeccable) by itself could not assure first sale compliance. These market conditions, as well as the reloading of previously reloaded cameras and (probably, most minimally) the tourist camera processing by United States laboratories, would cause “leakage” in the ICP.
Fuji presented sub judice much the same sampling-based case regarding first sale as it did in ITC II, 60 beefing up its analysis with additional Japanese manufacture and shipment documentation. 61 The Fuji case development of camera models and markets effectively identified “United States sale” LFFPs and “foreign sale” LFFPs by camera type. Though various conditions or events could render these identified sale markets less than absolutely certain (i.e., a foreign-intended LFFP could conceivably wind up as being sold in the United States), Fuji’s position as to camera types and markets was quite strong. That position was, in this court’s view, essentially unrebutted.
Fuji’s proofs then parlayed the model sale site data with six samples of Jazz shells selected by Fuji employee Field at Fuji recycling sites, along with some unused Jazz LFFPs bought at retail by Fuji’s counsel’s investigators (as well as some units bought by Kodak employees under the direction of witness Strong).
Using Fuji samples and data, ITC counsel recommended to the ALJ and the ALJ accepted in ITC II, a 40% foreign first sale factor in the Tranche II period. 62 Ex. P-118A at 65. Benun, standing by his reliance on the ICP, leveled various attacks on the sampling testimony.
The selection process for the sampling (by Field) and his evaluation of those samples is, in this court’s view, controversial. And, Bilka’s counsel-programmed “analysis” (in reality, more data entry than analysis) was hotly contested by Benun. Of most concern to this court is the relatively small size of the sampling offered as evidence by Fuji: of some twenty-seven million Jazz LFFPs at issue in the Tranche II period, the 40% factor was derived from the 2003 analysis of only 2,745 Jazz cameras/shells (a number now raised to 2,851 here). Ex. P-VV ¶¶ 2; Ex. P-27; Ex. P-231. Of this number, fewer than 500 new Jazz cameras (as distinguished from Jazz shells hand picked from recycling bins) were evaluated. See Ex. P-118A at 60-61. Besides being skeptical about the shell sample size, this court acknowledges that Fuji employees were in a position to skew the shell collection process by making a point of collecting identifiable foreign-made LFFPs. (This, in essence, is a turnabout of the “verification” issue pressed as to processing by Fuji.) However, Field was not shaken on cross-examination with respect to his shell collection, and results of “off-the-shelf’ unused cameras (though in smaller lots), comported with results in the shell evaluation. Consider, inter alia, Kodak employee Strong’s declaration and testimony regarding sampling. Ex. P-B ¶¶ 11-16 and 7/26/06 Tr. at 112:23-151:20; 166:21-174:3; 192:12-193:24.
Benun’s objection to Bilka’s testimony is, at root, a concern that Fuji’s counsel “designed” this evidence. In a sense, that is true. Nevertheless, on close inspection, the program created by counsel was an appropriate syllogism which tied together the complex logic of manufacturing, shipping, sales, and sample evaluation. Each step was sufficiently proven out in court, notwithstanding Benun’s assertion that the purported best evidence of first sale (i.e., shipping records of the Fuji Sales Division) was not produced. Again, though complex proofs as adduced by Fuji could have been improved, they certainly were sufficient and credible in making the case against Benun. In particular, the photographs used by Bilka to identify Japanese-made LFFPs were painstakingly (and convincingly) “squared” with actual cameras and sources. Bilka, in his limited capacity as an observer and recorder of data, was a credible witness, fairly programmed for his task.
As explained above, reliance by Benun
solely
on the unenhanced ICP and PRE’s purported sourcing would not be accept
For this court, the essential point is that neither PRE nor Jazz took any steps to sort shells in the Tranche II period so as to cull out those most obvious contaminants (shells with foreign language wrappers and Jazz’s own reloads of reloads). 63 This blatant failure, in the face of the premium being placed on domestic shells, allowed for the possibility that even photo-processors (and more likely other shell collectors) would yield to the temptation of a marketplace pricing aberration by acquiring foreign shells in anticipation of reselling them as United States qualifying parts. PRE’s collection proofs and the 85% convention simply don’t compute as the weight of the evidence to establish first sale given such a marketplace potential and in the face of direct evidence of foreign shell contamination of Jazz’s inventory.
Fuji’s case against first sale is its survey-developed 40% factor. The 40% factor is based upon small samples taken from a sea of shells (handpicked by Fuji employees), and less than 500 Jazz LFFPs bought in retail establishments. Nevertheless, in the final analysis, this sampling is the only direct evidence available to this court which tests the origin of sale of actual Jazz LFFPs. Therefore, (i) in deference to ITC II and in recognition of its persuasive though not preclusive effect as to this issue, and (ii) given that the burden of persuasion (by a preponderance of evidence) weighs on Benun (and he has failed to carry that burden), this court finds that 60% of the shells at issue in Tranche II were first sold by Fuji or one of its licensees in the United States, while 40% could not be established as “first sold” in the United States.
D. Conclusion as to Infringement.
Jazz infringed Fuji’s patents; Benun, as Jazz’s principal operator, plainly in control
In terms of numbers and dollars, judgment is rendered at the 56$ unit damage factor developed as a “reasonable royalty” in District Court 7. 65 From August 21, 2001 through December 31, 2002, ITC II determined that 15,957,730 LFFPs were sold by Jazz. Ex. P-118A at 90-91, n. 65. Another 11,000,000 were estimated to have been sold in 2003 through December 12. Ex. P-118A at 91, n. 67. Sub judice, Fuji presented proofs which varied somewhat from the ITC II Jazz sales figures. See Exs. P-182, P-183Y, and P-EEE (as amended and entered into evidence May 18, 2007). The August 21, 2001-December 31, 2002 total per Ex. P-EEE (as amended and as employed by this court 66 ) was 16,-407,914. Though Benun continues to object to the admission of Ex. P-EEE, both sides cooperated in gathering the data from Ex. P-182 to create Ex. P-EEE as amended. They agree that Ex. P-182 (as well as Ex. P-183Y) are appropriately reflected in Ex. P-EEE. The 450,000 unit increase is attributable to a tabulation of underlying Jazz documents (part of Ex. P-182), rather than reliance on a lesser accurate summary sheet used in ITC II.
Utilizing the
Benun
bankruptcy petition date of July 2, 2003 to determine the pre- and post-petition claims of Fuji against this debtor, this court finds the following: prepetition, Benun induced infringement of the 16,407,914 LFFPs sold in Tranche II through December 31, 2002
plus
5,817,919 units
67
sold to July 2, 2003, for a total of
E. Whether Fuji Established Ben-un’s Willful and Malicious Injury to its Property for Purposes of § 523(a)(6) Exception to Discharge in Tranche II.
1. Burden of Persuasion.
It is emphasized that, unlike the repair defense burden of persuasion (being on Benun), the “willful” and “malicious” allegations of Fuji must be proven by that plaintiff (and by a preponderance of the evidence).
Compare, Appeal
/,
In sum, (i) exceptions to bankruptcy discharge are narrowly construed, (ii) willful injury requires that consequences, not merely acts, be intended, (iii) negligent or reckless conduct does not satisfy the § 523(a)(6) standard, (iv) the willfulness standard is either subjective intent to injure, or (on a split of authority) either objectively or subjectively measured belief that the injury is substantially certain to result from debtor’s acts, and (v) the malice element of § 523(a)(6), if not unified with the “willful” component, entails intent to injure and the lack of justification or excuse.
2. Process of Repair.
Since this court has found that repair processes in Tranche II satisfied the repair defense requirements, analyzing Ben-un’s state of mind in conjunction with the factory procedures in China is not necessary. However, Benun’s action relative to repair processing upon learning of the August 21, 2001 Federal Circuit opinion sheds some light on his overall state of mind in the Tranche II time frame.
Benun took what this court finds to be significant remedial and/or cautionary steps in an attempt to comply with (or to demonstrate compliance with) the only vaguely stated
Appeal I
repair procedure requirements. Among these steps were: prompt notice and warning to the repair factories that
only
the eight-step approved process was to be used;
68
an admonition that improperly processed LFFPs would not be purchased by Jazz;
69
factory compliance/commitment letters were sent by Jazz to the factories;
70
provision was made for Fuji inspection of the factory sites;
71
enhanced Jazz quality control visits were instituted;
72
signs were posted in the factories depicting the permitted repair process;
73
certain videotapes of some factory processes were developed;
74
and, control over the factories by Jazz was tightened, first by reducing the number of these contractors, and, ultimately, by cen
To one or another extent, Fuji sought to discredit or demean Benun’s post-August 2001 efforts at the Chinese factories. In this court’s opinion, those efforts only emphasized the disarray wrought by the vagueness of the “repair” standard; here, a relatively small business enterprise was attempting to navigate the uncertain process requirements through “proof’ of compliance. On balance, this court finds that Benun fully intended to have Jazz meet the repair processing requirements of the Federal Circuit, acted in good faith in this regard, and (as previously decided) did meet those requirements. Given (i) the Benun/Jazz post-August 2001 efforts to prove its “repair” processing, (ii) the thoroughly vague picture of “permissible repair” in the Tranche II period, and (iii) the obviousness of the reloading process and its use among some or all of at least twenty-six of the respondents in Appeal I, it is clear to this court that Benun did not induce Jazz to refurbish LFFP shells in a manner, subjectively intending to have Jazz infringe Fuji’s patent through any LFFP reloading process. Benun’s mental state, developing in the Tranche II period, was to the contrary: this court concludes that at least as to processing, Benun sought to avoid further trouble with Fuji, and in furtherance of that effort took reasonable steps (and relatively easy steps) 76 toward processing requirements. See, e.g., 5/9/07 Tr. 152:23-153:7. Moreover, Benun did not, nor would a reasonable reloader of LFFP’s have anticipated with substantial certainty that the processes in use would be part of an infringing reconstruction of cameras. Indeed, the repair defense was approved by the Federal Circuit as a legal principle and the reloading process was obvious and nonoffensive. Excuse (given the vagueness of the developing requirements for LFFP reloading) or outright justification (as this court has found) persisted in the Tranche II era as to process. Therefore, any debt of Benun which would arise from the process of reloading camera shells, even if that aspect of the affirmative defense of repair had not been proven by Benun, would not have been for willful and malicious injury to Fuji within the meaning of § 523(a)(6).
3. First Sale.
Benun implemented (or activated) the Jazz ICP immediately upon learning of the Federal Circuit’s announcement of the first sale (in the United States) requirement for the repair defense. The shell tracking program was detailed, comprehensive, and conceptually logical though not “airtight.” In practice, as described above, there was undue “leakage” and it became something of a failure. Apparently, much of that leakage was remedied after 2003 by implementation of the sorting process at the Hong Kong factory of Polytech. 77
(a) Factors Considered.
Should Benun have shorn up and enhanced Jazz’s ICP and shell acquisition in the Tranche II period, such that his inaction (and the corresponding act of inducing Jazz’s refurbishing of camera shells not first sold in the United States) resulted in
(i) Jazz encountered a certain amount of chaos immediately after the Federal Circuit announced its 2001 decision but, in this court’s view, did make a responsible attempt to purge its inventory and system of foreign shells (stopping shipments of refurbished LFFPs, examining warehoused inventories, air shipping shells from the United States to Hong Kong to keep supply available for the Christmas season, etc.) (see 7/28/06 Tr. at 58:2-18; 164:13-166:15; 171:4-6; 8/29/06 Tr. at 247:13-252:9; 10/13/06 Tr. at 21:18-24:13); this chaotic state understandably impacted on both the effectiveness of Jazz’s compliance with the new first sale requirement and Benun’s state of mind as he scrambled to readjust the Jazz business;
(ii) Implementation of the ICP required coordination of flow of shells and documentation; flawed as it eventually was shown to be, it obviously absorbed Jazz’s limited management manpower and generally could have initially led Benun to believe (wrongly, as it turned out) that Jazz was in greatest part meeting the first sale requirement;
(iii) Gaining control of shell supplies involved very large volumes and an enormous worldwide market for LFFPs (Jazz alone was selling on average almost 1,000,000 units per month in the Tranche II period); this market context appears to have led Benun to make a businessman’s rationalizations, including one to the effect that a perfect filtering system was impossible and therefore the ICP and related efforts were “good enough”;
(iv) Similarly, Fuji was most secretive, protecting its product by not providing shell-embedded coding that could be read in the marketplace to aid in discerning first sale; Fuji, never wanting any refurbishing competitor to meet the Federal Circuit requirement of first sale, may well have denied the marketplace an objective readily discernible means of identifying the site of first sale; 78
(v) Shells recycled in this country were subject to various actual or Benun-perceived sourcing which either would or could introduce foreign-made LFFPs into the United States for first sale; 79
(vi) To the extent that shells were supplied to “PRE” by domestic retailers who did photoprocessing, the conventional wisdom was that 85% of LFFP consumers purchasing from such retailers return their cameras for processing to these domestic sources; 80 and
(vii) To the extent that United States photoprocessing sources (both large retail establishments and others) were the largest proportion of shell sources in the Tranche II period, 81 and there is a logical connection between United States processing and United States sale of LFFPs, Benun’s reliance on PRE’s purchasing (and the use of the ICP) had some merit.
Running contrary to Benun’s position (i.e., favoring a conclusion that injury to Fuji was willful and malicious), are the following:
(i)Benun, knowing that a substantial component of shells refurbished before the first sale requirement was announced in August 2001 would not satisfy first sale, nonetheless made no effort to cull out previously reloaded shells (until the practice of sorting out “reloads” was instituted in 2004);
(ii) Benun knew that first sold United States shells were being sold at premiums after August 2001 (prices nearly doubling, with rises of 30c to 35<t per shell), thus providing an attractive market for shell arbitrage (and the potential for the importing of foreign shells to the United States, to be “palmed off’ as having been first sold here) 82 ;
(iii) Benun has not been able to provide any of PRE’s purportedly obtained certifications as to first sale bona fides of its purchases on behalf of Jazz; 83
(iv) Benun/Jazz did not follow up with PRE to assure that shells provided by PRE truly qualified as having been first sold in the United States;
(v) Benun had conceded in ITC II that 5% of the refurbished shells failed the first sale test (see Ex. P-118A at 39); and
(vi) Benun, having developed a businessman’s rationalization that the ICP and PRE’s purchasing methods were “good enough,” maintained that position for more than twoyears following the 2001 Federal Circuit decision (introducing sorting of reloads and foreign language shells only after the December 2003 ITC II hearing).
(b) Evaluation of Factors.
For patent infringement purposes, of course, this court has already determined that Benun has not proven that Jazz had satisfied first sale through implementation of the Jazz ICP (and reliance on PRE’s purchases). However, in terms of bankruptcy discharge, the introduction of the ICP serves as a strong indication of Benun’s initial intention to comply, generally, with Federal Circuit first sale requirements. The ICP and related reliance on PRE also serves, to a certain extent, as the basis for a subjective excuse or an objectively reasonable one under the circumstances in which Benun and Jazz found themselves on August 21, 2001. 84 Nevertheless, Benun should have reflected on the flaws in the ICP and PRE’s purchases, both at outset and as the Tranche II period progressed, notwithstanding that he and Jazz were under siege. Indeed, the reloads were at outset a known contaminant to collections; then, as ITC II was initiated, the plainest signal was provided to Benun that strict attention had to be given to the “details” of first sale. Business-based rationalization and a self-serving “good enough” standard were not adequate.
(c) Findings Regarding Willful and Malicious Injury in Tranche II.
Based on the foregoing, this court finds by a preponderance of the evidence, that:
(i) Benun, upon hearing of the August 2001 decision, at outset generally intended to satisfy first sale requirements by having Jazz adopt the ICP and by relying on PRE and its largely photoprocessor-based supply;
(ii) Failures in Jazz’s “in-house” documentation in the ICP were more a function of negligence than willful and malicious conduct; while Benun should have paid more attention to detail, he certainly was not handling the day-to-day minutia of complex shell tracking; however, at some point during the Tranche II period, it would have become apparent to any reasonable business person, and did become apparent to Benun, that PRE’s shell purchases could well have been impacted by the shell arbitrage market; 85 eventually, Ben-un’s apparent failure to enforce PRE’s documentation requirements (the required certifications as to source), and otherwise inspectPRE’s purchases, was more than mere recklessness;
(iii) Shell sorting at the LFFP production point, implemented in 2004, in conjunction with the ICP, would have improved first sale compliance in the Tranche II period (and probably would have proven the affirmative defense to infringement); failure to sort, though initially negligent or at worst, reckless, became inexcusable as the Tranche II period progressed; more particularly, there came a time 86 beyond which Benun should have directed that shells still wrapped in identifiable foreign language packaging or otherwise reflecting same, be sorted out of the refurbishing process; 87 and
(iv) Benun’s intentions and rationalizations in implementing the ICP, though initially contrary to willful and malicious conduct and injury in the main, could not be applied to one class of shells, i.e., the shells garnered from previously reloaded LFFPs; these shells should have been excluded from collections, at Benun’s direction, immediately upon his digesting of the “first sale” requirement in August 2001. 88
(d) Summary of Tranche II “Willful and Malicious” Findings.
In sum by a preponderance of the evidence (but not by clear and convincing evidence 89 ), this court finds and concludes:
(i) At outset and immediately upon the August 21, 2001 announcement of the first sale rule by the Federal Circuit, Benun knew that reloads of those shells Jazz (and perhaps others) had previously reloaded, were largely nonqualifying as first United States sales;
(ii) Given that knowledge, Benun’s failure to cause the removal of previously reloaded shells from those Jazz was refurbishing, established either Benun’s intent to violate Fuji’s patent rights to the extent of Jazz’s refurbishing of reloads, or his knowledge to a substantial certainty (as would anyone situated in Ben-un’s position and having his experience and background), that those reloads would violate Fuji’s patent rights;
(iii) There is no excuse or justification for Benun’s failure to cause the removal of previously reloaded shells from Jazz’s shell inventory or purchases, through a sorting process (actually undertaken in 2004) or otherwise;
(iv) Therefore, from and after August 21, 2001, Benun’s inducement of Jazz’s infringement is found to have been “willful and malicious” injury to Fuji to the extent of Jazz’s refurbishment of previously reloaded LFFPs, and the debt arising therefrom is excepted from Benun’s bankruptcy discharge pursuant to § 523(a)(6);
(v) From and after October 1, 2002 (through December 12, 2003), Benun knew that PRE’s shell supply was subject to foreign shell “contamination” arising from market conditions (shell arbitrage and the potential for “palming off’ foreign shells as United States sold);
(vi) Given that knowledge, Benun’s failure to require PRE to sort, or otherwise have Jazz sort out at least the most obvious foreign shells (those with foreign language wrappers or labels) as well as reloads, established either Benun’s intent to violate Fuji’s patent rights to the extent of Jazz’s refurbishment of all nonfirst United States sale shells (after October 1, 2002), or his knowledge to a substantial certainty (again, as would anyone situated in Benun’s position and having his experience and background) that non-qualifying shells were being refurbished by Jazz in violation of Fuji’s patent rights;
(vii) There is no excuse or justification for Benun’s failure, by October 1, 2002, to cause the removal of foreign language shells from Jazz’s shell inventory or purchases through a sorting process (again, actually undertaken in 2004) or otherwise; and
(viii) Therefore, from and after October 1, 2002, through December 12, 2003, Benun’s inducement of Jazz’s infringement is found to have been “willful and malicious” injury to Fuji to the extent of all foreignshells deemed to have been refurbished and sold by Jazz, and the debt arising therefrom is excepted from Benun’s bankruptcy discharge pursuant to § 523(a)(6).
4. Calculation of Portion of Tranche II Judgment Excepted from Discharge.
(a) Reloads of Reloads.
The variables in calculating the measure of damages excepted from discharge in the Tranche II judgment attributable exclusively to reloads, include: the number of previously reloaded LFFPs, again reloaded and marketed by Jazz in the August 21, 2001-September 30, 2002 period; the percentage of those LFFPs which failed the first sale requirement; and, the damage rate per unit of infringing sales.
Fuji presented no direct evidence of the number of reloads of reloads Jazz sold. However, in its effort to impeach Benun, the subject was quite roundly addressed by Fuji at trial. Benun countered with his own estimates and handwritten exhibits showing certain calculations. In sum, Benun first testified that he estimated the maximum reload sale factor at 2% to 3%. See 8/31/06 Tr. at 16:19-25, 18:21-25:13. Exhibits D-S and D-T were more specific, with D-S showing a 2002 factor of 2.2% and D-T a 2003 factor of 2.8%. Fuji’s effort to impeach Benun on this point related back to ITC II transcripts and an ALJ determination there that 20% to 30% of Jazz’s LFFP shells were previously reloaded. See P-118A at 143. (There, unfortunately, the ALJ cited to the ITC hearing transcript at pp. 1529-31, viewing Benun’s testimony as a “concession”; however, the subject was revisited in the ITC hearing at transcript pp. 1559-60 where Benun explained his 20% reference.)
The subject of Benun’s December 12, 2003 testimony (along with the percentage of reloads of reloads Jazz collected in the Tranche II period) was deeply plumbed on May 9, 2007 sub judice. See Tr. 5/9/07 at 131:11-144:24. Benun’s testimony was plainly a function of raw estimates — he explained that in the relevant period 3% to 5% of the LFFP market was refurbished cameras. He further explained that Jazz collected 20% to 30% of these previously reloaded cameras and that was what he was trying to impart in ITC II when he answered the question relied on by the ALJ there.
This court finds that Benun’s explanation is credible, though not justifying the purported specificity of Exs. D-S and DT. Given the approximations involved in his testimony, the court will accept Ben-un’s 3% to 5% reload market share estimate as the best indicator of reloads of reloads in the Jazz collections in the Tranche II period, assigning the lowpoint (3%) to the August 21, 2001 to September 30, 2002 period. 90
Jazz LFFP sales from August 21, 2001 through September 30, 2002 totaled 13,-564,641 units.
91
Four percent of this total
This court considered applying the 40% factor of qualifying “first sales” to the reloads of reloads in the thirteen-month period ending September 30, 2002. That factor was generally applied for patent infringement purposes in Tranche II (see IV. C supra), a function of deference to the persuasive effect of ITC II. However, the immediate reloads at issue were a special class of Jazz LFFP sales, being marketed in the early part of the Tranche II period and either not benefiting or benefiting only minimally 92 from the ICP and other Jazz efforts at compliance with Federal Circuit requirements after August 21, 2001. Hence, this court opts for the 9.5% compliance figure (90.5% not qualifying) for all Jazz sales pre-August 21, 2001 as established in District Court I.
Again, the injury to Fuji should be monetized at the 56$ per unit rate utilized in District Court I. Therefore, the damages excepted from discharge for sale of reloads of reloads through September 30, 2002 is $206,237. These, of course, are prepetition damages.
(b) October 1, 2002 — December 12, 2003 period.
The balance of Tranche II period damages incorporates the 40% 93 disqualifying first sale factor and the 56$ per unit damage measure. Jazz sales in this period totaled 13,843,273 units, comprised of 2,843,273 for October 1 through December 31, 2002 (see P-EEE), and 11,000,000 units (as approximated by Benun in ITC II) for the balance (see P-118A at 91). Applying the factors (40% failure of first sale and 56$ per unit), damages excepted from discharge are $3,100,893. Of this amount $1,160,786 is post-petition damages (see Point IV.D supra) and the balance, $1,940,107, is prepetition damages.
V. Tranche I (Pre-August 21, 2001): Whether Fuji Established Benun’s Willful and Malicious Injury to Its Property for Purposes of § 523(a)(6) Exception to Discharge.
Tranche I exception-to-discharge infringement claims tried sub judice pertained to the 1998 sale by Jazz of newly manufactured LFFPs under a “Sesame Street™” license. The camera bodies were molded anew; these were not reloads.
Both Szeto and Benun testified to the circumstances of the newly molded LFFPs. Szeto testified that (i) uniformity of product was a customer requirement, (ii) she was aware that the shells were being molded anew, and (iii) she was aware that Fuji’s patents were thus being infringed. 7/28/06 Tr. 176:1-178:12; 3/28/07 Tr. 64:5-65:8. This court believes that Szeto was well aware — at all times relevant — that the Sesame Street™ order was an infringement of Fuji’s patents. Moreover, though she claimed to have communicated with Mr. Lorenzini (the then president of Jazz) about the order, Szeto and Benun were in constant contact; Szeto was at all relevant times Benun’s “right hand” operator in Hong Kong. 3/28/07 Tr. 60:3-62:13. It is inconceivable to this court that an atypical, licensed order (“Sesame Street™”) of more than a million units, would not be the subject of Benun-Szeto discussions, prior to and during the manufacturing process, particularly as to the shell uniformity requirement.
Benun’s denials as to the newly molded shells ring hollow to this court. See 5/9/07 Tr. 180:24-185:13. He admitted approving the artwork for the cameras. 8/31/06 Tr. 102:20-103:2. Yet Benun denied all other knowledge of this special, infringing order, managed in China by Szeto. His effort to shield himself from guilty knowledge of the infringement by interposing Lorenzini (who did not testify) as the project manager in the United States, in this court’s judgment, fails, given Benun’s character and role at Jazz. While some paperwork details (such as ICP documentation) would not be of interest to him, this special order would not — and indeed this court finds did not — escape the scrutiny and knowledge of Benun.
Benun, with knowledge that the order was being filled with newly molded shells in 1998, promoted the infringing sale of the Sesame Street™ LFFPs in 1998; his inducement to infringe was without excuse or justification and therefore the debt arising therefrom is for willful and malicious injury in terms of § 523(a)(6). That aspect of the District Court I judgment is excepted from discharge. 94
VI. Issues of Enhancement of Compensatory Damages.
This court will not enhance the damages awarded herein, notwithstanding (i) the “willful and malicious” injury findings of Part IV, supra, and (ii) the ITC II finding of Benun’s “bad faith” violation of the Cease and Desist Order.
Pursuant to patent law, the award of enhanced damages is permitted (as are attorney fees).
See
35 U.S.C. §§ 284 and 285. Such damages and fees are awarded at the discretion of the court.
See District Court I,
A. Lack of Clarity in the Patent Law.
“Permissible repair” is vague, relatively undefined, and developing on a case-by-case basis. Failure to establish the repair process aspects of the affirmative defense would thus be a questionable basis for enhanced damages and fees in many circumstances. This would be the situation sub judice even if proofs had not been deemed adequate to establish that appropriate processes were employed in Tranche II on behalf of Jazz. See Point IV.B supra. The loose standard, its development on a trailing basis (i.e., after the fact of events along the time line since ITC I), and the misconceptions of the ITC as to the repair defense, engendered commercial activity which tended to test requirements of the repair defense generally, or to rationalize about the contours of the law. Benun — as his testimony demonstrated to this court— rationalized his way into trouble. His businessman’s aggressive approach to the field of LFFP repair, after having been vindicated conceptually as to process by the Federal Circuit in August 2001, was wrong as to “first sale.” The ICP efforts, at outset having positive compliance potential, faltered. However, on balance (and notwithstanding the extent determined herein “willful and malicious” for § 523(a)(6) purposes), Benun’s conduct was less than “egregious” in light of his successful efforts at meeting appropriate repair processing and in implementing the potentially positive ICP shell collection and tracking system (which, along with PRE’s purchases of shells from United States photoprocessors, brought about a certain degree of first sale compliance).
B. Facts Establishing Infringement.
Infringement in this case is a function, exclusively, of failure of “first sale” proofs. As indicated above and throughout this opinion, to a certain degree the ICP (coupled with PRE’s shell acquisition from photoprocessors) was a sufficiently credible Benun effort to reduce first sale noncompliance and to offset some of Fuji’s exception to discharge contentions. The two prominent areas of exception to bankruptcy discharge not so offset have been determined to be the reloads of reloads and the post-September 30, 2002 sales. Each of these § 523(a)(6) “failures” is not sufficient to qualify as “egregious” or otherwise justify more damages and fees.
The reloads of reloads were subject to Benun’s business rationalization. Though an unconvincing argument, Benun’s point does emphasize that this infringing class of LFFPs has been found to be an extremely modest component of the overall infringement (and were culled from the processing by Jazz after 2003).
The post-September 2002 failure of Jazz to sort out foreign language shells (as well as reloads of reloads) and more strictly enforce its own ICP and PRE’s documen
C. Facts Establishing Damages.
This court notes the relatively “thin” bases for establishing the non-first sale factors (i.e., 90.5% for early Tranche II sale of reloaded reloads and 40% overall). The 90.5% factor was a function of Loren-zini testimony in District Court /; that trial began in October 2002 and focused on Jazz sales from 1995 through August 21, 2001. For the reasons set forth earlier, that factor rather than the 40% first sale failure rate was applied sub judice; however, the lack of precision necessitated by a forced choice between these two percentages leaves open the possibility that the “real” failure rate (if even discernible) would be lower than 90.5% in the August 21, 2001-September 30, 2002 period as to reloads of reloads.
More significantly, the 40% failure rate (developed for ITC II and accepted there) was the product of some “engineering” by Fuji’s long-time counsel. While having merit in its logic and appearing to be rooted in certain truths, it was unabashedly designed to satisfy Fuji’s proof needs in ITC II through the gathering of shells by Fuji’s employees or affiliates, and through analysis by a paralegal (Bilka) hired and programmed by Fuji’s counsel.
Compare Appeal I,
In fact, the statistical sampling that yielded the 40% conclusion is subject to serious question. Examination of recycled Jazz shells by Fuji employee (and witness) Field, was a function of six samplings (“Emerald” collection, “First Edison” collection, “Second Edison” collection, “First TIG” collection, “Second TIG” collection and “MEM” collection). The results of these collections are as follows:
Emerald — 223 of 400 deemed to be foreign (56%) (see P-118A at 45);
First Edison — 139 of 431 deemed to be foreign (32%) (see P-118A at 45-46); Second Edison — 94 of 274 deemed to be foreign (34%) (see P-118A at 46);
First TIG — 114 of 400 deemed to be foreign; (29%) (see P-118A at 47);
Second TIG — 166 of 416 deemed to be foreign (40%) (see P-118A at 47); and MEM — 185 of 407 deemed to be foreign (46%) (see P-118A at 47-48).
Overall, 39.6% of the above shells were claimed to be foreign shells not first sold in the United States.
See
Ex. P-118A at 58. The shell samples — 2,328 Jazz shells selected by Field out of piles of recycled shells — has served as a basis for evaluating Jazz’s sale of
27 million LFFPs
in Tranche II. Field also purchased 400 Jazz cameras in July 2003, “off the shelf’ of retail stores. These were deemed to be 31% manufactured by Fuji
in Japan
and (via Bilka referring to Fuji-supplied shipping records) not shipped to the United States.
See
Ex. P-118A at 60. In April
In grand total, including all shells and new cameras examined, the gross sampling upon which the 40% factor was determined was 2,796. This minor amount, and the personnel and methodology of shell/eamera selection and sampling analysis, leave open the possibility that the 40% factor is overstated. Indeed, Benun had insisted throughout ITC II that the foreign shell mix was 5% (though Benun has not offered any counterpoint proofs, as distinguished from attacks on credibility, to the 40% factor).
Thus, to the extent that the referenced damage factors though adequately established are less than convincingly clear, and in the circumstances of this case, enhanced damages and fees should not be awarded. 95
D. Effect of Judgments, Penalty and Bankruptcy on Damage Enhancement and Fees.
Benun’s inducement of Jazz’s infringement has cost him dearly. Jazz has been forced into bankruptcy and liquidated. He is now in a Chapter 7 case, subjected to the bankruptcy liquidation processes.
In addition, of the multimillion dollar awards against him, more than $4 million will be excepted from discharge as a result of this proceeding, and the ITC II penalty of more than $13 million remains on the horizon for exception-to-discharge determination. 96 Interest on the Tranche I judgment excepted from discharge here will continue to run, as will post-judgment interest on that aspect of this court’s judgment excepted from discharge for Tranche II claims. See Point VII, infra. In this court’s view, the net result without enhancement of damages or fees suffices.
E. Case, Taken as a Whole, Does Not Warrant Enhanced Damages.
Overall, this court reiterates that the preponderance of the evidence supports the Fuji-oriented variables necessary both to establish Benun’s inducement to infringe to the extent set forth herein, as well as the more limited finding of exception to discharge. However, there is no science to, nor conclusive exposition of facts underlying these conclusions. Fuji, having so made its case, has not made any portion of its case by clear and convincing evidence.
More specifically, Benun made out his case for the affirmative defense of “repair” for almost 60% of Jazz’s Tranche II sales; as to the balance, Jazz’s processing passed muster, though first sale could not be established. The tracking system, Jazz’s ICP, had some merit. Even the absence of sorting to exclude foreign language and reloads of reloads shells, without justification or excuse as to the latter from August 21, 2001, and the same for the foreign language shells after September 2002, was not “egregious” behavior. This is so, notwithstanding the limited finding of exception to discharge based upon a “willful and malicious” injury determination by a pre
This court will not exercise its discretion to enhance damages, given the totality of circumstances of this case.
F. “Bad Faith” Finding of ITC II Compared and Contrasted.
In ITC II, it was found that Jazz and Benun had violated the Cease and Desist Order in bad faith. 98 (The bad faith finding was not discussed in Appeal III.) It was found that Jazz and Benun had failed to “take ‘energetic steps’ to do ‘everything in their power’ ” to avoid infringing Fuji’s patents. See, generally, Ex. P-118A at 114-15.
The good or bad faith of the violator of an administratively issued injunction is an important factor in assessing the appropriate penalty.
United States v. Phelps Dodge Indus., Inc.,
The matter here at bar is not a function of government enforcement of a cease and desist order; rather, it is an infringement case where a portion of the inducement to infringe was found to satisfy, by a preponderance of the evidence, the exception to discharge standard of § 523(a)(6). 100 This court has not found a willful inducement to infringe under the patent law’s heavy standard of clear and convincing evidence. Though respectful of the ITC, this court is not bound by ITC II. To the extent indicated herein, this court disagrees with the ITC both as to Benun’s efforts to comply with the August 2001 Federal Circuit decision, and the degree to which he actually complied. Therefore, the “bad faith” finding of ITC II should not be a basis for enhancing damages or awarding attorney fees to Fuji.
VII. Interest on Claims; Attorneys’ Fees and Costs.
Benun contends that § 502(b)(2) of the Bankruptcy Code stops the running of interest on Fuji’s claims, as of the July 2, 2003 petition date. While it is true that interest post-petition on unsecured claims cannot be charged against the estate in bankruptcy, interest on debts excepted from discharge continues to run against the individual debtor. See 4 Alan N. Resnick and Henry J. Sommer, Collier on Bankruptcy § 502.03(3)(b), and cases cited therein.
In this case, interest continues to run
against Benun
on the
District Court I
judgment for
Tranche I
damages (i.e., as to the Sesame Street™ cameras). That interest accrues
(against Benun)
at the rates allowed in the New Jersey Court Rules (4:42-11) for that portion of judgment excepted from discharge.
101
Post-judgment interest will apply to both pre-petition
Tranche II
claims- to the extent excepted from discharge, and post-petition Tranche II claims (all of which happen to be so excepted), as reduced to judgment here.
See, generally, Leeper v. Pa. Higher Educ. Assistance Agency (PHEAA),
This court will exercise its discretion and not award prejudgment interest on the Tranche II damages excepted from discharge, nor will the court award to plaintiff counsel fees and costs. See 35 U.S.C. § 284. The rationale for denying enhanced damages applies here as to any such interest, fees and costs. See Part VI, supra.
The bankruptcy context of this case cannot be set aside when considering additives to debt excepted from discharge.
See In re Wood,
In fact, Benun’s resistance to Fuji’s contentions in this adversary proceeding was reasonably effective — more than half of Fuji’s claim to infringement damages was, in this court’s view, disproved by Benun. The lion’s share of Fuji exception to discharge assertions has been rejected here (i.e., all of the now considerably more than $20 million of Tranche I LFFP reconstruction damages plus over three-quarters of those sought for the Tranche II period).
See
Ex. P-181. Hence,
delay
in resolving Fuji-Benun issues must be attributed to the patent holder as well as the inducer of patent infringement. The same is true as to the extraordinary cost of this case and the odyssey of litigation preceding and paralleling it. In sum, Fuji at the very outset
overstated
its patent rights (wrongly claiming the repair concept did not apply to LFFPs), to some extent continued to overstate its position thereafter, succeeded in
District Court I,
then in ITC II,
VIII. Summary/Conclusion.
Tranche I injury arising from Benun’s inducement of Jazz’s patent infringement by refurbishing LFFPs (i) not “willful” as found by the District Court I jury (under the more rigorous “clear and convincing” evidence standard), and (ii) as determined here after a pretrial review of Fuji’s proposed direct case, was not “willful and malicious.” Damages for that inducement are therefore not excepted per 11 U.S.C. § 523(a)(6) from the bankruptcy discharge. Though issue preclusion based upon the District Court 1 determination did not apply, the finding there of no willful inducement is persuasive, and this court’s review of Fuji’s case as to Tranche I LFFP refurbishment (to the extent deemed to be “reconstruction”) is, as to Benun’s state of mind, conclusive.
Tranche I injury and the resulting damages to Fuji arising from Benun’s inducement of Jazz’s infringement for manufacturing (not refurbishing) certain “Sesame Street™” LFFPs, is excepted from discharge. The injury was “willful and malicious” as those terms are used in § 523(a)(6). While District Court I found this inducement “willful,” that finding (by clear and convincing evidence) could well have been a function of a jury finding of recklessness. Here, however, this court finds that, by a preponderance of the evidence, Benun knew that Fuji would be injured by the infringement, and that Ben-un acted in this regard without excuse or justification. The District Court I judgment for the Sesame Street™ camera infringement, including interest as awarded, will not be discharged in bankruptcy. That judgment will remain undisturbed in all respects.
In Tranche II, Benun’s inducement to infringe has been determined and liquidated. Fuji’s liquidated claim is in the principal amount of $4,978,586 for damages accruing before Benun’s July 2, 2003 bankruptcy petition filing date, and $1,160,786 post-petition.
A portion of the Tranche II judgment will be excepted from discharge under § 523(a)(6). Specifically, $206,237 is determined to be the compensatory damages for Benun’s inducement to infringe by reloading previously reloaded LFFPs in the August 21, 2001 through September 30, 2002 period. In addition, $1,940,107 of Fuji’s claim is determined to be excepted from discharge, attributable to the period from October 1, 2002 to the July 2, 2003 petition date. Post-petition, $1,160,786 is likewise excepted from discharge.
No prejudgment interest has been awarded to plaintiff, nor is there any award for enhanced or punitive damages, or any counsel fees or costs.
This court will issue its Order and Judgment consistent with this opinion.
Notes
. Related decisions include:
Fuji Photo Film Co., Ltd. v. Int’l Trade Comm'n,
. Eventually, Jazz was rendered subject to liquidation (an ongoing post-confirmation process) and Benun’s individual Chapter 11 case was converted. Jazz’s liquidation plan
.The District Court then defined the intersection of these two requirements as the limit of the proven affirmative defense (i.e., 380,944 units), leaving 39,718,425 as infringing sales.
. No affirmative defense of "repair” could have been asserted where LFFPs were produced from newly molded camera shells and parts.
. Whether ITC II was actually "stayed” per 11 U.S.C. § 362(a), or was not so stayed per § 362(b)(4), was never resolved.
. Characteristic of the intense marketplace struggle between Benun and Fuji, these LFFPs were purchased from the liquidating debtor, Jazz, through this court by a newly formed entity, "Ribi Tech”; Ribi Tech is said to be owned by Benun’s wife and operated by him; Fuji has sued Ribi Tech and Benun in the United States District Court for New Jersey (the ongoing "Ribi Tech Case").
. After oral argument on December 16, 2005, this court granted Benun’s motion for summary judgment on Complaint Count Two, thereby eliminating from this adversary proceeding 11 U.S.C. § 523(a)(4) (exception to discharge for breach of a fiduciary duty).
Inter alia,
it was concluded that Benun was not a "fiduciary” as that term is used in § 523(a)(4), Fuji was not a beneficiary of any entrusting relationship, and that Fuji’s effort to expand this discharge exception would render superfluous much of the application of § 523(a)(6), contrary to the intent of Congress.
See In re Casini,
Sub judice, there has been no such deposit by Fuji, no such shareholder/director/officer relationship of Benun, and, most clearly, no "embezzlement” alleged by Fuji.
. By Consent Order entered on May 24, 2006 Fuji voluntarily dismissed with prejudice Count One of its Amended Complaint. Count One sought to deny Benun a discharge under 11 U.S.C. § 727.
. This is the date established as the cutoff for the ITC II penalty assessment (the period of claimed violation being the August 21, 2001 date of the Federal Circuit decision in Appeal I through the hearing date of ITC II).
. Bilka, a witness in ITC II, was a paralegal retained by Fuji's counsel to "catalog” the origins and characteristics of some 2,800 cameras and LFFP shells which Fuji personnel had previously investigated. Bilka’s accounting was based solely and exclusively upon camera characteristics and data provided to him by others (through Fuji’s counsel).
.This Court is reluctant to disregard opinions of the Court of International Trade
[Jazz Photo Corp. v. United States,
transcript entry 164) at 23:13-25.
. See July 17, 2006 transcript (docket entry 155) at 11:17-12:2; 27:23-28:14; and 30:3-8.
. Though cross-summary judgment motions had been denied (and that denial reiterated) in the December 16, 2005 through February 2006 period, by May 26, 2006 (see transcript, docket entry 116) the preclusion issues by tranche of damages were pinpointed, and briefing was required by the court. At a hearing on motions in limine on July 17, 2006, the court, reflecting on the parties’ pretrial memoranda as to issue preclusion, decided that inter alia ITC II would not be preclu-sive (docket entry 155 at 52:7-19). That issue had been fully briefed and argued by the parties. In addition, the court expressed its inclination to excise from trial Fuji’s claims arising from refurbishment of LFFPs to the extent of the "nonwillful” District Court I jury determination. The parties (and Fuji in particular) were put on notice of the court’s intention to decide that scope of trial issue on July 26, 2006 (the first day of trial); supplemental briefs were solicited (docket entry 155 at 54:24-55:2). The issue was decided on July 26, 2006, as hereinafter described (docket entry 164 at 10:9-22:25).
. Under the Bankruptcy Code "the term 'debt' means liability on a claim.” Claim includes "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, un-matured, disputed, undisputed, legal, equitable, secured, or unsecured....” 11 U.S.C. § 101(12) and (5A), respectively (emphasis added). In fact, Fuji has filed three separate proofs of claim in Benun’s bankruptcy case (Nos. 5, 23, and 24 in that case), and Benun has objected to each (see case docket entry 312, dated April 5, 2006).
.Hence,
judgment
for Tranche II damages becomes a potential matter ancillary to the determination of exception to discharge; indeed, given the nature of the patent infringement claim and the affirmative defense, short of deeming ITC II to be preclusive and/or determining that all Tranche II damages were other than willful and malicious injury to Fuji, this court cannot determine what (if any) part of the Tranche II claims are excepted from discharge without deciding the merits and extent of the affirmative defense. Fuji has submitted to the jurisdiction of this court by both
filing
proofs of claim and
initiating
this adversary proceeding. As to the authority of bankruptcy courts to both determine liability and liquidate claims in the course of deciding exception to discharge adversary proceedings,
see De La Cruz v. Cohen (In re Cohen),
. In
Appeal I
the Federal Circuit used the word "refurbish” as "a convenient neutral term without legal significance, intended to connote neither 'repair' nor ‘reconstruction’ of the used cameras.”
. Other basic requirements for issue preclusion have been met, i.e., the intent issue (to the extent decided) was "actually litigated”; there has been a valid and final judgment issued in District Court /; and, the findings as to willfulness were essential to the District Court's determination.
. Restatement (Second) of Judgments. § 28, cmt. f leaves open the possibility of an exception to the exception regarding burdens of proof.
To apply issue preclusion in the cases described in Subsection (4) [differences in the burden of persuasion] would be to hold, in effect, that the losing party in the first action would also have lost had a significantly different burden been imposed. While there may be many occasions when such a holding would be correct, there are many others in which the allocation and weight of the burden of persuasion (or burden of proof, as it is called in many jurisdictions) are critical in determining who should prevail. Since the process by which the issue was adjudicated cannot be reconstructed on the basis of a new and different burden, preclusive effect is properly denied. ... [Emphasis added.]
See Marlene Industries Corp. v. NLRB,
. The jury finding as to willful infringement (for the newly produced cameras), already deemed to be nonpreclusive, will also be assessed in terms of its persuasive effect in conjunction with other factors.
. In the case at bar, for Tranche II both the debtor’s state of mind (“willful and malicious”) and the injury (patent infringement) are at issue; there are thus crosscurrents as to ultimate burdens of persuasion. Fuji has that burden as to Benun’s § 523(a)(6) state of mind, while it is Benun’s burden to establish the affirmative defense to infringement, i.e., repair.
. The Eighth Circuit’s
Geiger
opinion used a subjective test: “If ... he was an intentional tortfeasor as we have defined that term,
he would have to have believed
that Mrs. Ka-waauhau was substantially certain to suffer harm as a result of his actions.”
. The recent nonprecedential case of
In re Granoff,
. “Willfulness” in infringement is one of degree; infringement ranges " 'from unknowing, or accidental, to
deliberate, or reckless, disregard
of a patentee's legal rights.' ”
Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp.,
.
Geiger,
.
See
Jury Instructions at No. 50 ("Where a potential infringer has actual notice of another’s patent rights,
he has a duty of due care not to infringe.
In making the determination as to willfulness, you must consider all of the evidence and the totality of the circumstances. The totality of the circumstances comprises a number of factors, which include, but are not limited to whether the
defendants exercised due care to avoid infringing the patent
(emphasis added). The jury's finding of Benun's
inducement
to infringe was coupled with a finding of
"no willfulness”;
this coupling, without more, rebuts Fuji's pretrial position that the inducement finding portended “willfulness” for § 523(a)(6) purposes. Moreover, it is clear from Judge Hochberg's determination (on the post-finding motion for JMOL) that she based her support for the jury finding of inducement on Benun's control of Jazz — without specifying any state of mind
to harm Fuji. See
. In the context of tort law, "justifications” and "excuses” differ as to both state of mind and effect. 1 The Law of Torts, § 69 at 157 (Dan B. Dobbs ed., West 2001). Justifications — such as self-defense — will relieve a defendant of liability for an intentional tort when the judge believes that "people in general can rightly act as the defendant did under the circumstances that confronted him.”
Id.
at 156-57. On the other hand, excuses— such as mistake — are not based on a defendant’s
rightful
act; rather, "excuse” applies where "the defendant's conduct was understandable given his personal condition and that he is not personally blameworthy for matters not within his control.”
Id.
at 157. Thus, while justifications "tend to invoke objective standards of reasonableness,” excuses "focus on subjective mental or psychological characteristics of the actor....”
Id.
In addition, unlike justifications, excuses generally "do not furnish defenses to intentional tort claims.”
Id.
The Third Circuit’s definition of "malicious” — i.e., that the debtor acts "without just cause
or excuse
"• — therefore would appear to require proof for § 523(a)(6) purposes that a debtor commits a wrongful act without
either
objective justification or the seemingly more subjective excuse.
Cf. Qui v. Zhou (In re Zhou),
. More specifically, Fuji contends that Jazz’s failure to investigate its refurbished LFFP sales after the ITC issued its initial determination supports a finding of "bad faith infringement” that is a type of "willful infringement.”
See Jurgens v. CBK, Ltd.,
determination during the jury trial in order to avoid prejudicing Jazz. Although Fuji does not contest the district court’s evidentiary ruling, it believes that the district court should have considered Jazz’s lack of investigation after the ITC initial determination in its enhanced damages analysis.
Id.
. At trial, Jazz adduced the following evidence on repair/reconstruction: (1) a videotape recording taken in the spring of 1998 at the refurbishing facilities of a single Jazz supplier, Boshi (the "Boshi Video"); and (2) the testimony of Mr. Lorenzini, Jazz's current Chairman of the Board of Directors, who was present during the making of the Boshi Video and who also visited two other Jazz suppliers, Peji and Ginfax, in 1997 and 1998.
Mr. Lorenzini testified at length regarding the processes exhibited in the Boshi Video. He also testified regarding the substantial similarity between the Boshi processes and the processes used at Peji and Ginfax during his visits to those factories. Based upon Mr. Lorenzini’s testimony, this Court's review of the Boshi Video, and the jury's verdict in response to Question 5, the Court is satisfied that Jazz has met its burden to prove permissible repair with respect to all cameras refurbished by Boshi, Peji and Ginfax.
. Jazz presented no testimony of Mr. Benun on this issue, despite his apparent involvement in the procurement of empty shells. Nor did Jazz call Ms. Szeto, the Managing Director of Jazz Hong Kong, who testified at length in the ITC about the details of processes she had personally seen in visiting four different Jazz suppliers.
Jazz chose to rest on the Boshi video and Mr. Lorenzini's testimony. However, Mr. Lorenzini never visited any factory other than Boshi, Peji or Ginfax, and the Boshi video itself says nothing of the processes employed by any other Jazz supplier.
. Fuji in
Appeal II
constructed an argument for enhanced damages based upon Jazz's alleged failure to investigate refurbishment
after
the issuance in 1999 of the Cease and Desist Order.
.
Compare and contrast
the jury’s
willful infringement
finding, (i) which arises from a single sale of a particular "Sesame Street™” product, (ii) where by finding patent law willfulness, the jury could well have concluded that Benun was "reckless” in dealing with an order created from newly molded shells, (iii) where no aspect of "malice” was part of the trial, (iv) where, in evaluating "all of the facts and circumstances,” the District Court specifically refused to enhance damages (a conclusion not even challenged by Fuji in
Appeal ID,
and (v) where there was no direct evidence adduced at trial as to Benun's knowledge of the use of newly molded shells (only inference derived from the actual sale, and Benun’s credibility as assessed by the jury). There is thus neither a legal basis for issue preclusion nor the presence of persuasive factors which would limit the scope of trial of Benun’s alleged willful and malicious injury caused by
. "[T]here is no genuine issue as to any material fact." Fed.R.Civ.P. 56(c) (Fed. R. Bankr.P. 7056). Benun’s nonwillful inducement to infringe as to Tranche I refurbishment (and the concomitant absence of malice) remove state-of-mind issues as triable facts
sub judice. See Celotex Corp. v. Catrett, All
U.S. 317, 324,
. Benun has conceded on the record that he is not challenging Fuji’s patents and that as to infringement, Benun will rely on the affirmative defense of repair.
. While the “persuasive value” of ITC II’s patent law determination (to the extent affirmed in Appeal III) should be considered by this court, the state of mind required to establish a § 523(a)(6) exception to discharge remains central to this court's role, and Fuji’s unliquidated and disputed Tranche II claims were submitted by Fuji for determination here. See note 15, supra. See also Fuji’s request for a specified damage judgment. Ex. P-181.
. Trial was predictably document-heavy; volumes of exhibits were introduced into evidence; physical exhibits (LFFPs), photographs and videos rounded out the library of admitted evidence. At the conclusion of the trial, the parties were instructed to submit proposed findings of fact and conclusions of law (including an initial volley and then a rejoining submission by each side). Following these very substantial submissions, there was closing oral argument on January 25, 2008.
.
“Aro Manufacturing [Aro Mfg. Co. v. Convertible Top Replacement Co.,
.
Appeal III
acknowledged that "there must be adequate notice of what conduct is regulated by the [Cease and Desist Order], ... and the parameters of any relevant affirmative defenses.... In this case, Benun clearly had notice [of the first sale in the United States requirement] ...
Whether he had adequate notice of the scope of permissible repair is a matter we need not decide
[because the issue was not adequately raised on appeal].”
. Here the back cover of the LFFPs was part of a patent directed to a combination of elements; the back cover was not separately patented. The Supreme Court [in Aro Manufacturing] rejected a test for repair/reconstruction that would look to whether an “essential" or "distinguishing” part of the patented combination had been replaced.... In doing so, the Court concluded "that the combination patent covers only the totality of the elements in the claim and that no element, separately viewed, is within the grant” and “that there is no legally recognizable or protected 'essential' element, ‘gist’ or 'heart' of the invention in a combination patent.”... We see no material difference between the Commission’s test that focused on whether an "integral” component has been replaced, and the tests previously rejected by the Supreme Court that focus on whether an “essential” or "distinguishing” part, or part that is at the "gist” or "heart” of the invention, has been replaced.
.Process patents yield to the permissible repair affirmative defense
(Appeal I,
. This court and other tribunals have repeatedly concluded that, in view of the continued utility of the shutter mechanism, lens, viewfinder, film advance mechanism, and other significant parts in the original camera, replacing the film is a permissible repair and reattaching or replacing a part that must be removed or broken to replace the film also constitutes permissible repair.
Appeal III,
. Likewise, replacement of spent "integral” parts or those which are the "gist” or at the "heart” of the invention in a combination patent is acceptable as “repair.”
Appeal III,
.Appeal III,
. ITC II may have interpreted its charge from
Appeal I
as requiring
verifiable information
to establish the repair affirmative defense. (Certainly Fuji has pressed "verifiable evidence" as an essential in proving the permissible repair defense. Fuji "Proposed Findings of Fact” ¶ 113.)
Appeal III
noted that in ITC II "[t]he Commission found that 'there is a lack of complete and credible information
verifying
the LFFP refurbishing process at many of Jazz's supplier factories’ and therefore that Jazz had failed to prove permissible repair cameras made at these factories.”
.
Compare and contrast District Court I,
where Judge Hochberg made the point that the
only
evidence of processing in the Tranche I period was a 1998 video of the Boshi factory (the only factory video presented there), and Jazz Board Chairman Lorenzi-ni’s testimony (which she credited as to three factories); she noted that (unlike the case here) Szeto and Benun did not testify as to process.
. Mr. Bellows has served as Fuji's expert since at least 1998, participating in the full enforcement history with Jazz and Benun. See Ex. P-L ¶¶ 1-3. This Bellows' proffer, like his testimony, fails to identify an event or example of Jazz's "reconstruction” of LFFPs in the Tranche II period.
. An example of Bellows’ efforts to rebut Szeto testimony related to the 2003 Jinshi factory video (Ex. P-HHHH). Though picking at some of her descriptions of factory activity and signage (as not being adjacent to a filmed factory assembly-line function said to be referenced in a particular sign), Bellows, again, never claimed that any activity described in the video (or any process act testified to by Szeto), was impermissible repair. See, e.g., 4/26/07 Tr. 164:23-167:16. This court concludes that, though Szeto may have misunderstood or otherwise misidentified one or another video-depicted function being performed on the 2003 Jinshi assembly line, generally her testimony regarding repair was convincing. Fuji’s stressing of the mis-descriptions or signage issues in the Jinshi video, as an illustration of the purported unreliability of Szeto or claimed weakness in Benun's permissible repair case, is greatly overstated.
.This court is fully aware of the burden Benun has in proving his affirmative defense; but, given Szeto’s testimony (as well as that of Zawodny and Benun), the burden of going forward was met. Fuji’s use of physical exhibits and videos and the Bellows commentary — offered to discredit Benun's case — actually strengthened this court's view that the reloading of LFFPs was a simple and obvious matter and that Jazz’s suppliers were performing the obvious and permitted repair functions. Indeed, Fuji expert Bellows was most certain in identifying mold markings evidencing that the Sesame Street™ shells had been newly molded. 8/29/06 Tr. 33:24-34:16; Ex. P-L ¶¶ 15-16, 19. Yet, he never uttered a word indicating new molding of parts for any of the many other Jazz shells and cameras exhibited during trial, nor that Jazz LFFPs were even the product of a regularized process of wholesale "cannibalizing” and complete reassembly of piece parts. No Fuji witness or exhibit ever affirmatively challenged Jazz processing as being other than "repair” (though Fuji cross-examined defense witnesses on the whereabouts of spent-part camera backs as if their replacement would prove "reconstruction,” that point was put to
.Bellows’ effort to discredit Zawodny’s testimony and the videos was unconvincing. See, e.g., 12/5/06 Tr. 55:8-22 regarding Ever-best repair of Fuji shells versus non-Fuji shells — viewed by Zawodny as including "basic steps for — are the same" — and regarding similarity between Everbest repair and other factory repair — "very similar." Bellows' lengthy description of "differences" in processing, which this court does not see as discrediting the Zawodny view as to "basic steps” or being "very similar,” fails to challenge any video-depicted assembly-line technique as being other than "permissible repair," and thus reinforces this court’s conclusion that repair was ongoing in Jazz supply factories in the Tranche II period. See 4/26/07 Tr. 140:25-143:18.
. Q Did there come a time that you dispatched — strike that. Mr. Benun during this period of time did you personally visit any of the Chinese repair factories?
A At which specific time?
Q 2001?
A Yes.
Q And what was the purpose of your visit to those factories? A In 2001 was to make sure that all of them complied with the law. And generally I would visit factories any way. All with the factory people. That would be the scope.
8/29/06 Tr. 264:1-10.
. For example, after 2003 and the ITC II hearing, Benun ordered Polytech to stop molding replacement camera full backs, replacement
later
approved by the Federal Circuit in
Appeal III. See
. Fuji's challenges to the purportedly “biased” witnesses, to certain video clips and/or comment about videos by defense witnesses, and emphasis on lack of “verification” or "verifiability” of processes, have been fully considered by this court, both during trial and in the months following. They simply fail to come to grips with the very broad concept of repair in the context of low-tech, easily understood assemblies. LFFPs are readily subject to reloading, without intricate manufacturing processes; for that common sense reason, the disposable camera shells became the business target of more than twenty-five enterprises; Jazz, probably the most active of these enterprises, performed (to Fuji’s chagrin) the obvious and least costly repair on Fuji shells. "More” processing would have been both unnecessary, potentially offsetting some of the fundamental economies of the Jazz business. The defense witnesses are thus found to be credible as to process, partly because their testimony makes sense when one considers the marketplace.
. Haase had, in fact, agreed at one point to salvage flash units from Fuji-exchange shells, and to recycle the plastic. Ex. P-MMM. See also P-TTT; 4/25/07 Tr. 10:3-19:20; 26:15-25; 40:20-41:1; 155:5-162:18.
. See Exs. P-174 and D-7, depicting Flowchart and Document Names, depicting flow of product and tracking documentation.
. See, e.g., Declaration of Jazz Vice President of Operations Burlthard, Ex. D-U ¶¶ 3-14; testimony of witness Peterson (Customs Counsel to Jazz), 8/1/06 Tr. 23:10-34:19.
.
See CIT Trial,
. Messrs. Silvera were principals of Jazz's primary shell collector in the Tranche II period, Photo Recycling Enterprises, or "PRE.”
. Reloads of reloads were, basically, Jazz-labeled LFFPs (put together with tape and otherwise identifiable as having been refurbished); this subject drew much attention in ITC II, and the following specific comment by the Federal Circuit in Appeal III:
[Tjhere was evidence that Jazz treated substantial numbers of its own shells collected in the United States (the "reloaded reloads”) as having been sold in the United States even though it knew that 90% of these shells were first sold abroad (before the first refurbishment).
. Benun testified that after August 21, 2001, the cost of shells first sold in the United States increased dramatically, "40, 45 cents to 70 [cents],” 5/9/07 Tr. 158:19; see also 4/11/07 Tr. 65:4-11; 5/9/07 Tr. 155:4-159:18; 8/29/06 Tr. 271:19-272:10. Fuji employee Menon essentially concurred. 4/25/07 Tr. 27:20-28:6; 29:10-25; 30:1-3; 30:9-20.
. Part of the ICP documentation requirements was for primary shell suppliers (basically PRE) to obtain from their various collectors certifications as to the source of shells obtained by the collectors. Ex. D-0 ¶ 12; see also 8/30/06 Tr. 11:19-16:18. Though the Silveras were ordered by this court to search for and produce such certifications (8/30/06 Tr. 89:8-13) for the Tranche II period (as opposed to the 2004 documents provided in Ex. D-9 and to the CIT at trial), no certifications were found. See Ex. D-V, which this court finds falls short of the certification requirement.
. Fuji Japan executives Ogura and/or Katsu-ra testified: to where and when some six different Fuji LFFP types were manufactured; describing production codes (distinguishing Japan codes from United States codes); deciphering Fuji Japan production records and coding; interpreting shipping records; and as to the sale locale of certain physical cameras (upon examination by Katsura) related to the sampling. Fuji United States employees Croker, Menon, Field and Baer weighed in on determinations of where six types of Fuji cameras were made. Employees of Fuji licensees, Konica (via Kautsky testimony) and Kodak (via Strong testimony) provided similar input. Field, in particular, testified to Fuji’s United States recycling of shells and six "collections” of shells from four different Fuji shell collection facilities. These collections, done in conjunction with Fuji’s efforts to stop Jazz reloading and as instructed by counsel, served as much of the basis for the ITC II "40% foreign shell” conclusion.
.See Ex. P-VV at ¶¶ 19, 27-41; 1/26/07 Tr. 12:4-13.
. Now, Fuji apparently takes the position that Benun failed to produce here any calculus for a first sale factor, and thus all shells should be deemed to have failed the first sale test. See Fuji Proposed Conclusions of Law ¶ 49. This court disagrees, noting Fuji’s heavy reliance on ITC II (which, of course, includes the 40% finding), and Fuji's proofs in this trial. Given the state of the record, it is too late in the day for Fuji to argue that Benun offered no numerical/statistical evidence of first sale and thus he should lose the “benefit” of Fuji's proofs. In sum, on the way to proving its overall case, Fuji proved the 40%/60% ratio of nonfirst sale to first sale.
. Apparently, PRE did a certain amount of “sorting” and "sampling” in the 2001-2003 period. See Ex. D-0 ¶¶ 15-24; 8/30/06 Tr. at 42:17-45:23; 53:21-54:1; 67:5-69:1; 124:6-128:2; 143:16-146:12; 189:20-193:21. (Whether these processes were in conjunction with shell trading with Fuji or its licensee Kodak, or both, is not absolutely clear.) In any event, why a more discerning process of sorting was not initiated before 2004 has never been answered to this court's satisfaction by Benun or PRE’s principals, the Silveras.
.
District Court I
amply established Benun’s control of Jazz.
. Benun challenges this use, arguing that Fuji has not provided proofs of a per unit damage factor
in this proceeding. See
Benun "Reply” ¶¶ 278-79 (Docket No. 245). However, this issue, essential to the
District Court I
trial, was decided there.
. Ex. P-EEE (as amended) serves as a composite exhibit, including 2001 and 2002 sales figures derived from Exs. P-182 and P-183Y. Where differing figures appear on this exhibit in the Tranche II period (September 2001), the lower number (516,407 units from Ex. P-182) has been used. Moreover, since daily figures were available for August 2001, the figure derived from Ex. P-182Y for the August 21-31 period (668,762 units) was utilized.
. This total is derived by multiplying the 11,000,000 units sold in the January 1, 2003 to December 12, 2003 period, times 183 (July 2 being the 183rd day of the year), divided by 346 (December 12 being the 346th day of the year).
. 03/27/07 Tr. at 82:1-17; Ex. D-I ¶¶ 41, 42.
. Ex. D-C ¶ 18; Ex. D-I ¶ 39.
. Ex. D-C ¶ 17; Ex. D-I ¶ 39.
. 03/27/07 Tr. at 82:1-17; Ex. D-I ¶¶ 47, 48.
. Ex. D-G ¶ 7, Ex. D-Y ¶ 4.
. Ex. D-C ¶ 19; 12/05/06 Tr at 46:16-21.
. Ex. D-G ¶ 9; 12/05/06 Tr. at 55:8-22; 68:9-19; 78:18-79:2.
. Ex. D-G ¶¶ 10, 12-14; Ex. D-I ¶ 43.
. In fact, in District Court I Benun had proven process compliance in three of eight factories during the Tranche I period; as to the balance of the factories there was no evidence put forth. Contrast the degree of difficulty in, and attendant cost of, complying with the newly applied "first sale” requirement.
.See CIT Trial,
.
See CIT Trial,
T . . , . , . Jazz and similarly situated companies cannot reasonably be expected to have access to information that does or may exist, and would be expected to be proprietary to Fuji and the licensees, from which the location of first sale of a shell could be ascertained to a certainty. In order for the "permissible repair” exception identified and delineated by the Court of Appeals for the Federal Circuit ... to have any practical meaning in commerce, Jazz must be permitted to conduct its business such that "first sale” may be established on the basis of evidence that is commercially available to it.
. in sum, Benun includes in his many arguments: (i) that in the early part of the Tranche II period, shell supplier Haase (through his companies) had a shell exchange program with Fuji which either constituted a "first sale” by Fuji of foreign made shells in the United States, or otherwise introduced foreign shells into the United States, or both; (ii) early on (1998, etc.) the Fuji Greenwood, S.C. factory required some support through Fuji-Japan manufactured shells; (iii) infer-
.
See CIT Trial,
. See Ex. D-0 ¶¶ 8-11; Ex. D-10.
. As to the dramatic rise in shell prices, see 8/29/06 Tr. at 271:25-272:19; see also 5/9/07 Tr. at 158:10-24; compare, e.g., Ex. D-Z at J13335 (Right Express invoice dated August 7, 2001 pricing a Fuji 400 Flash shell at 47$) with Ex. D-AA at JAZZ-90253 (Right Express invoice dated September 7, 2001 pricing an F400-F shell at 55$), and Ex. D-AA at J13324 (Right Express invoice dated October 24, 2001 pricing an F400-F shell at 65$), and Ex. D-AA at J13316 (Right Express invoice dated November 6, 2001 pricing an F400-F shell at 75$). As to the minimal shipping cost per shell, see 5/9/07 Tr. at 157:23-158:9.
.Compare and contrast CIT Trial,
. The court is particularly mindful of the unrelenting pressure brought to bear on Ben-un and Jazz by Fuji, both before and, as heightened during the Tranche II period. In a very compressed time frame, ITC II was initiated (September 2002), District Court I was tried (October 2002 — March 2003), and both Jazz and Benun were forced into bankruptcy (May 2003 and July 2003, respectively). And, through all these events, the law of repair was developing, generally on a trailing basis around Fuji's targeted competitors. Fuji, of course, continued to work incessantly through long-time counsel to develop its construct of the law, and supporting facts, as it saw fit.
. Initially in the Tranche II period, Benun’s claim to having equated United States photo-processing with United States LFFP sales, may well have supported Benun’s heavy reliance on the ICP and PRE; however, this factor "wore thin" with the sharp rise in the United States shell prices, the obvious potential of sorting out foreign language bearing shells, and the ITC acceptance of Fuji complaints as a basis for initiating ITC II in September, 2002.
. On September 24, 2002, the ITC issued its second notice of enforcement to Jazz and Benun. See Ex. P-118A at 9-10. This court finds that the initiation of this enforcement proceeding was a significant event, evidencing the ITC’s conclusion that there was a factual and legal basis going forward against Jazz and Benun. Benun, knowing of his jeopardy, should have then initiated the foreign language shell sorting, rather than delaying (as he did) such sorting into 2004. That notice, and the passage of time allowing for Benun’s observation of the shell marketplace, eliminated any excuse or justification Benun had with regard to sorting and tightening surveillance of PRE. For purposes of calculation of damages excepted from discharge, the court will assume that Benun shall have received and digested the ITC II notice by September 30, 2002; beginning October 1, 2002, Benun should have caused Jazz or its suppliers to have begun sorting shells as described.
. Benun’s various arguments that foreign language on shell wrappers or labels is not a strong indicator of the locale of first sale, are unconvincing. Fuji witnesses, including Ogu-ra and Croker as to Fuji cameras, and, Strong as to Fuji licensee Kodak cameras and Kaut-sky as to Fuji licensee Konica cameras, quite credibly made the clear (and sensible) point about the language indicator. See Ex. P-118A at 35. See also 8/02/06 Tr. at 49:16-50:1, 53:7-11, 60:10-25, 63:14-64:17; Ex. PK ¶ 14; 8/01/06 Tr. at 174:20-25; 9/01/06 Tr. at 22:4-9, 31:1-11; Ex. P-B ¶ 6; 7/26/06 Tr. at 148:19-150:19; Ex. P-NN ¶¶24, 26; Ex. P-UU, 1/25/07 Tr. at 19:3-20:13; 1/24/07 Tr. at 10:16-21, 1/25/07 Tr. at 41:10-42:15, 50:14-60:23, Ex. P-NN ¶24. At best Benun argued via cross-examination of these witnesses, all too expansively contending that the foreign language factor was not absolute. Nevertheless, it surely was a logical basis for sorting and complying with the first sale requirement. Benun should have instituted foreign language sorting well before the 2004 date when he finally got around to it. Ben-un’s contention that Fuji did not call the foreign language factor to his attention until the December 2003 ITC II hearing, is irrelevant; Benun’s obligation was to actively comply with patent law.
.Benun argues that somehow he believed that the Federal Circuit’s ruling of August 21, 2001 was "prospective,” so that a camera both first sold outside the United States and reloaded for the first time by Jazz before that date was "okay,” for a second reloading after that date. This argument was unconvincingly delivered by Benun as a witness. Indeed, this point, and the corollary that no one told him about the reload of reloads issue, are business-driven rationalizations. On reflection, this court has concluded that Benun would, here and there, allow himself the "luxury” of such pretenses about patent law compliance — ignoring reload of reloads early on, and eventually not paying sufficient attention to the mushrooming of shell arbitrage.
. The probative but limited proofs of the 40% "failure rate” of Jazz's ICP, those factors cited herein as weighing against exception to bankruptcy discharge, and various plausible but on balance unconvincing arguments in defense, render the following findings less than clear and convincing.
. This court thus declines to accept both the 2.2% and 2.8% calculations of Exs. D-S and D-T (as giving the appearance of specificity where rank approximations are at their core) as well as Benun's 2%-3% August 31, 2006 testimony, in favor of the more general and believable marketplace estimate given by Ben-un at Tr. 5/9/07 at 142:9-22. The 3% low-point of the 3%-5% range (i.e., that part of the LFFP market comprised of reloads) was selected after taking into account Benun’s testimony that CVS and Walgreens (large shell suppliers to PRE per Ex. D-10) did not sell reloads. See 8/31/06 Tr. at 17:1-26:13. As already indicated, this court rejects the 20% to 30% figures derived from ITC II. At best, the parties and the court are working with approximations throughout much of this case.
. See Ex. P-EEE (as amended and admitted into evidence on May 18, 2007).
. No evidence established with any precision the flow of collection of reloads of reloads refurbished and sold by Jazz in the August 21, 2001 to September 30, 2002 period which were the product of “original” camera shells subject to at least one pre-August 2001 refurbishment. This court, taking into account the sale, collection, refurbishment and remarket-ing cycle needed to get a post-August 2001 first reloaded shell back to market, concludes that nonqualifying, previously reloaded shells from the earlier period constituted by far the largest part of the reloads of reloads refurbished by Jazz in Tranche II through September 30, 2002. Therefore, the earlier first sale noncompliance factor of 90.5% would be more apposite than the 40% factor used in the entire Tranche II period by the ALJ in ITC II.
. Reloads of reloads are part of the overall 40% disqualifying sale factor utilized in ITC II. Therefore, no separate calculation is necessary for these reloads after September 30, 2002.
. That portion of the District Court I judgment is the only part excepted from discharge; it carries interest as awarded but no enhanced damages. The issue of enhanced damages for the Sesame Street™ order was determined by the District Court, and should not be revisited here. See Part VI, infra.
. The court notes, as well, that the 56$ per unit damage rate has some potential to be stale.
. This court takes notice of the adversary proceeding pending here, initiated by the United States against Benun for the purpose of excepting the $13,128,000 ITC II penalty from Benun’s bankruptcy discharge.
. This court does not see the need, given its view of the case as a whole, to engage in an extended analysis of the issue of Benun's "willful inducement to infringe.” Even if all or a portion of Benun’s behavior underlying the damages excepted from discharge herein were (i) deemed to be at least reckless (the lesser willfulness standard of patent law than that of the Bankruptcy Code’s “willful and malicious” requirement), and were found to be established by (ii) clear and convincing evidence (the heavier burden imposed by the patent law for willful infringement), this court would deny enhanced damages and attorneys’ fees to Fuji.
Compare District Court I,
where willful infringement was found but exemplary damages were denied.
. In pertinent part, ITC II states:
Respondents subject to a cease and desist order have “an affirmative duty to take 'energetic steps’ to do 'everything in their power’ to assure compliance, and this duty not only means ‘not to cross the line of infringement, but to stay several healthy steps away.’ ” [Cites to ITC Opinions omitted.] The Federal Circuit has further articulated such a position, stating that "the burden of avoiding infringement at the risk of contempt falls upon the one enjoined.” Smith Int’l. Inc. v. Hughes Tool Co.,718 F.2d 1573 , 1581 n. 8 (Fed.Cir.1983).
Ex. P-118A at 113.
. ITC II's application of the ‘‘safe distance away” from infringing a patent which is the subject of a cease and desist order, is consistent with the Federal Circuit’s opinion in
Paper Converting Mach. Co. v. Magna-Graphics Corp.
. The "safe distance away” standard does not coincide with that of the “willful and malicious” definitions of § 523(a)(6) of the Bankruptcy Code.
Consider Geiger,
.Apparently, in District Court I the parties stipulated to the use of the New Jersey interest rule rate.
. Both Fuji and Benun would likely contest the casting of Benun as being “thoroughly downed.” Benun, starting "fresh,” is attempting to get back into the camera business through the post-Jazz formed family-owned entity, "Ribi Tech.” Fuji is hot on his trail, initiating the ongoing Ribi Tech case. Indeed, Fuji, self-righteous in the pose of a stalwart protector of patent rights (as it would interpret them), characterizes Benun as a pirater of those rights, who must be punished to the fullest extent conceivable. Benun, having an exaggerated view of himself as a champion of freedom in the marketplace, battles with a giant of the camera world. Courts, obligated to resolve justiciable disputes put before them, need not be drawn into assessing such characterizations, which are very often mutually wrongheaded. Unfortunately, such wrongheadedness can, by deepening disputes, have the effect of draining limited public resources.