Panduit Corp. v. Stahlin Bros. Fibre Works, Inc. (JWB)

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The Case

  • Panduit Corp., Plaintiff-Appellant v. Stahlin Bros. Fibre Works, Inc., Defendant-Appellee, CAFC
  • Appealing district court decision, which awarded Panduit, as damages for patent infringement, a reasonable royalty of 21/2%

Background

  • 1964 – Panduit sues Stahlin for infringing Panduit’s Walch patent, covering duct for wiring of electrical control systems.
  • 1969 – district court found claim 5 valid and infringed by the ‘Lok-Slot’ and ‘Web-Slot’ ducts made by Stahlin – affirmed on appeal, certiorari denied
    • district court found Stahlin in contempt of injunction by selling ‘Tear Drop’ duct, which was imitation of ‘Lok-Slot’ – affirmed on appeal
  • 1971 – district court appointed a master to determine Panduit’s damages, and accepted recommendation of $44,709.60 in damages (2 ½% gross sales price)

Patent Background

  • Panduit began to sell duct in 1955
  • Caveney (Panduit president, inventor) applied for patent in 1956
  • Walch, employee of GE, was first inventor of duct; assigned patent March 6, 1962
  • Panduit acquired patent from GE and established policy of exercising its right to patent property
  • Stahlin began to manufacture/sell ‘Lok-Slot’ and ‘Web-Slot’ ducts in 1957 and continued to do so after Walch patent and issuance to Panduit in 1962 – also cut prices 30 %
  • Panduit seeks damages for lost sales from March 6, 1962 (date of first infringement) to August 7, 1970 (date of initial injunction), and profits lost due to price cut

Ruling

  • issue is whether the master's determination of a reasonable royalty was in error
  • Must determine would patent holder would have made had the infringement not occurred (35 USC 284)
  • Panduit argues that the district court erred (1) in denying Panduit its lost profits due to lost sales, or, in the alternative, a 35% reasonable royalty; and (2) in denying Panduit its lost profits from its own actual sales due to Stahlin's price cut.

Lost Profit Due to Lost Sales

  • patent owner must prove: (1) demand for the patented product, (2) absence of acceptable noninfringing substitutes, (3) his manufacturing and marketing capability to exploit the demand, and (4) the amount of the profit he would have made
  • (1) and (3) were clearly established, and for (2) master found “evidence clearly shows the existence of acceptable non-infringing substitute ducts” – that finding was in error
    • Panduit still not entitled to its lost profits because it failed to establish (4)
    • District court: “there was insufficient evidence from which a fair determination could be made as to the amount of profit plaintiff would have made on such sales.”
  • On the issue of Panduit's lost profits on lost sales, we affirm the district court.

Stahlin’s Price Cut

  • master's finding that: “Any loss in (Panduit's) profits due to the price reduction was more than compensated by the gain in profits due to the increase in plaintiff's sales volume because of the price reduction. Thus, the price reduction resulted in a net increase in profit to the plaintiff.”
  • We affirm, therefore, the district court's refusal to award damages on the basis of Stahlin's price cut.

Reasonable Royalty

  • When actual damages, e. g., lost profits, cannot be proved, the patent owner is entitled to a reasonable royalty. 35 U.S.C. s 28
  • Panduit was clearly damaged by having forced to share sales with Stahlin, in addition to thirteen years of litigation
    • the “damages adequate to compensate for the infringement” have been found to total $44,709
  • Stahlin was able to make infringing sales, as found by the master, totalling $1,788,384
  • Reasonable royalty after infringement cannot be found to be equivalent to ordinary royalty negotiations
    • that would almost encourage companies to infringe (they have nothing to lose)
  • The amount of a reasonable royalty after infringement turns on the facts of each case, as best they may be determined
  • For the 2 ½%, the master found: (1) non-infringing substitutes present, (2) Panduit could not have maintained a high price differential in the face of competition from substitute ducts, (3) both Panduit and Stahlin would have been aware of the competitive state of the market, (4) Stahlin's expert, Scofield, was “more credible and persuasive and more in line with the factual realities of this case” than Panduit's expert, (5) Stahlin's profit on gross sales of all its products for the relevant period was 4.04%, and there was “no evidence to indicate that the profit on its duct sales was significantly higher than the profit on its total sales generally.” The district court held those findings not clearly erroneous. We disagree.

Absence of Infringements

  • At the time the patent issued, there were four competitors, but they were recognized as making and selling not substitutes but infringing ducts
  • Illustrating the absence of infringements: Having begun manufacture of the duct in 1957, Stahlin continued after the patent issued in 1962, after Panduit instituted its infringement suit in 1964, and after the district court's injunction in 1969
  • There is no doubt that the patented product filled a waiting need and met with commercial success due to its merits
  • “That Stahlin's customers, no longer able to buy the patented product from Stahlin, were willing to buy something else from Stahlin, does not establish that there was on the market during the period of infringement a product which customers in general were, in the master's words, “willing to buy in place of the infringing product.””

  • Evidence is lacking, as we have said, that acceptable substitutes were on the market on the focus-date of first infringement.

Conclusion

Elements necessary to the determination of a reasonable were not determined by the master in his report and cannot be discerned from the record. They therefore must be determined on remand, considering (1) the lack of acceptable noninfringing substitutes, (2) Panduit's unvarying policy of not licensing the Walch patent, (3) the future business and attendant profit Panduit would expect to lose by licensing a competitor, and (4) that the infringed patent gave the entire marketable value to the infringed duct