Cummins-Allison Corp. v. Sbm Co., Ltd.

669 F.Supp.2d 774

CUMMINS-ALLISON CORP., Plaintiff, v. SBM CO., LTD. and Amro-Asian Trade, Inc., Defendants.

Civil Action No. 9:07CV196.

United States District Court, E.D. Texas, Lufkin Division.

November 13, 2009.

Clyde Moody Siebman, Edward L. Foote, and Lawrence Augustine Phillips, of Siebman Reynolds Burg & Phillips LLP, Sherman, TX, Peter C. McCabe, III and Scott J. Szala, of Winston & Strawn, David C. McKone, Jodi Rosen Wine, Justin D. Swindells, and Stephen G. Rudisill, of Nixon Peabody LLP, Jonathan C. Huckabay and William P. Schuman, of McDermott Will & Emery, Chicago, IL, J. Thad Heartfield and M. Dru Montgomery, of The Heartfield Law Firm, Beaumont, TX, Jeffrey G. Knoll, of Cummins-Allison Corp, Mt. Prospect, IL, for Plaintiff.

Charles J. Rogers and Thomas Loyd Warden, of Conley Rose, P.C., Houston, TX, Michael James Guthrie, of Conley Rose, Plano, TX, Michael Joseph Truncale, of Orgain Bell & Tucker, Beaumont, TX, for Defendants.

ORDER Re: DAMAGES FOR POST-VERDICT SALES OF INFRINGING PRODUCTS^*

RON CLARK, District Judge.

After considering the jury's findings and ruling on the parties' motions for judgment as a matter of law ("JMOL"), the court has, by contemporaneous orders, awarded the damages found by the jury for pre-trial infringing conduct and entered a permanent injunction against Defendants to prevent future infringing conduct. As often happens, sales of infringing products were made between the date the verdict was received and the date the permanent injunction was entered.

The proper calculation of post-verdict damages became a more hotly contested issue after the Supreme Court held that injunctive relief must be considered under the traditional four-factor test. See eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391, 126 S.Ct. 1837, 1839, 164 L.Ed.2d 641 (2006). To determine post-verdict damages, a hearing is frequently held some weeks or months after trial, at which the parties, supported by their experts, present a revised version of the damage calculations that were presented at trial. The successful patent-holder argues that a new economic analysis is needed, because a verdict of infringement means that post-verdict sales of infringing products are willful. It is not clear to this court how the jury's verdict changes the supposedly objective analysis of lost profits or a reasonable royalty.

The verdict of infringement does normally mean that future infringement is willful. When infringement is willful, Congress has provided that "the court may increase the damages up to three times the amount found or assessed." 35 U.S.C. § 284. Since Congress has limited courts to trebling "adequate" damages, it may be helpful for the court to first determine reasonable damages for sales occurring, or to occur, after the verdict (whether in the form of lost profits, royalty, or some other measure), and then increase that amount to account for willfulness.

In this case, pursuant to notice given to the parties well before trial, the jury was asked to determine future damages, and arrived at a royalty rate of $400.00 per infringing unit sold. There is substantial evidence to support this finding. In accordance with 35 U.S.C. § 284, and after considering the Seagate factors,¹ the court has determined that Defendants' post-verdict sales were willful and enhances the jury's award to $500.00 per infringing unit sold.

I. Background

Cummins-Allison Corp. ("Cummins") asserted infringement of four patents dealing with methods and devices for currency denomination and counterfeit detection. At trial, Defendants did not contest infringement as to the asserted representative claims of U.S. Patent No. 6,459,806 ("the '806 patent") and U.S. Patent No. 5,966,456 ("the '456 patent"). The jury found that the asserted representative claims of U.S. Patent No. 5,909,503 ("the '503 patent") and U.S. Patent No. 6,381,354 ("the '354 patent") were infringed. The jury failed to find that any of the claims of the patents-in-suit were invalid. At the post-trial hearing, the court granted Defendants' motions for JMOL as to the '354 and '456 patents on the grounds of invalidity, and the court denied Defendants' motions for JMOL as to the '806 and '503 patents.² The court will enter judgment on the verdict as to the asserted representative claims of those two patents, since the parties agreed that the invalidity of the '354 and '456 patent claims does not alter the measure of damages. [See Doc. # 220, Post-trial Hr'g Tr. Vol. 1 at p. 82, l. 7 through p. 83, l. 2.]³

The court has determined, pursuant to 35 U.S.C. § 283, and after applying the traditional four-factor test for a permanent injunction, see eBay, 547 U.S. at 391, 126 S.Ct. at 1839, that a permanent injunction is warranted to prevent future violations of the rights secured by Cummins's '806 and '503 patents. [See Doc. #221, Post-trial Hr'g Tr. Vol. 2 at p. 225, l. 8 through p. 226, l. 19.] Defendants stated at the post-trial hearing that they have made sales of infringing products since the date trial concluded. [See Doc. # 221 at p. 238, ll. 12-18.] The court is presented with the question of what damages will adequately compensate Cummins for these sales.

II. Properly Calculating Lost Profits or a Reasonable Royalty

Damages for lost profits are generally based on the guidance provided in, and the cases explaining, Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir.1978) and State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573 (Fed Cir.1989). Calculation of a reasonable royalty is typically grounded on the fifteen factors set out in, and the cases expounding upon, Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.Supp. 1116 (S.D.N.Y.1970). Whether a patentee claims lost profits, a reasonable royalty, or some mix of the two, the court has found no authority for the proposition that it is improper to submit to the jury the question of damages for infringement through the date of trial. However, as they did in this case, parties often raise objections to submitting to the jury any question regarding post-trial damages.

1. Does the Verdict Mean That Lost Profits or Royalty Must Be Calculated Differently?

Calculations of lost profits are proper when a party proves that it had the capacity to make some or all of the infringing sales and there is a reasonable probability that, but for the infringement, it would have made those sales. State Indus., 883 F.2d at 1577. No case indicates that a finding of willfulness plays any part in this analysis, and it is difficult to see how an expert could, with a straight face, argue that a jury's verdict of infringement changes the economic analysis of future lost profits.

Calculations of a pre-trial royalty rate are premised on the assumption of a willing buyer and a willing seller negotiating over a valid patent, which the buyer's system, method, or product infringes. See Georgia-Pacific, 318 F.Supp. at 1120. In this type of damages analysis, as in other calculations in the field of economics, assumptions are used to hold one or more variables constant, and these assumptions are treated as facts. See Campbell R. McDonnell, Economics 7 (8th ed. 1981); Roger N. Waud, Economics 8-9 (2d ed. 1983); see also Black's Law Dictionary 134 (8th ed. 2004) (an "assumption" is "1. A fact or statement taken for granted."). It is self-evident that changing the assumptions of an economic analysis will change the results. But failure to impose some limit on the variables an expert may consider would result in a useless exercise in which, for a fee, a plaintiff's expert drones on about a punitive royalty rate based on the absolute unwillingness of his client to license the patent-in-suit to the defendant for a host of reasons which could realistically include jealousy, hatred, or greed.

If the experts for both parties must ground their opinions on the same assumed facts, the court and jurors have a common framework for evaluation of other variables. The expert who argues post-trial that these assumptions were not treated as facts in his analysis admits that he failed to properly apply the underlying assumptions of the Georgia-Pacific analytical framework. Given this understanding of the meaning and function of an economic "assumption," a jury finding of infringement and no invalidity does not change any logically consistent analysis; rather, it merely confirms facts originally assumed.

Requiring experts to base their conclusions on common, fixed assumptions may seem artificial, but courts have adopted this hypothetical negotiation technique for many years in cases involving the acquisition of property. See, e.g., Almota Farmers Elevator & Warehouse Co. v. United States, 409 U.S. 470, 473-74, 93 S.Ct. 791, 794, 35 L.Ed.2d 1 (1973) (In eminent domain context, owner is to be put in the same position monetarily as he would have been but for the taking, and "[t]o determine such monetary equivalence, the Court early established the concept of `market value': the owner is entitled to the fair market value of his property at the time of the taking. And this value is normally to be ascertained from `what a willing buyer would pay in cash to a willing seller.'" (citations omitted)); City of N. Y. v. Sage, 239 U.S. 57, 61, 36 S.Ct. 25, 26, 60 L.Ed. 143 (1915) ("[W]hat the owner is entitled to is the value of the property taken, and that means what it fairly may be believed that a purchaser in fair market conditions would have given for it in fact,—not what a tribunal at a later date may think a purchaser would have been wise to give....").

Calculating a future royalty rate should be little different than opining on the rate the parties would have agreed upon at the hypothetical negotiation. If there have been changes in the market between the date of the hypothetical negotiation and the date of trial, a damages expert may include in pre-trial calculations every advantageous change in profits, sales, and other...