ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA - No. 38,166
Before: VAN DUSEN, ADAMS and ROSENN, Circuit Judges.
In May 1972, this Court determined that United States Patent No. 3,076,421, owned by Trio Process Corporation (Trio), is a valid patent, that it had been willfully infringed by L. Goldstein's Sons, Incorporated (Goldstein),*fn1 and that the case should be remanded to the district court for a determination of damages.*fn2 The question now before us is whether the district court on the remand erred in assessing the damages.
The patented process which undergirds this appeal is a technique for salvaging copper from scrap wire by the use of a special furnace in which the heat removes the insulation from the wire.*fn3
Although a patent was not issued until 1963, the owner, Trio, had instituted a program of licensing almost immediately after completion of the development of the method in the late 1950's. In fact, licensure was the only use Trio made of the patent; it never utilized the process itself.
Goldstein, in 1960, purchased the first two licenses sold by Trio. The purchase price of $20,000 covered both the license itself and the furnace needed to use the process. $13,000 was allocated for the license and $7,000 for the furnace. Sales were subsequently made by Trio to four other buyers between 1962 and 1969 at the $20,000 rate.*fn4 One company bought the package in 1967, with a modified but more expensive furnace, for $25,000. Another purchased the package later in the same year for $19,500. After a decision by Trio to raise the price of the package, two more were sold in 1972 for $25,000. No licenses have been granted since this Court's decision holding that the patent is valid.*fn5
Despite this Court's 1972 determination that the patented method had been willfully infringed by Goldstein, the infringement continued through 1973. In January of that year, Trio sought, and was granted, an injunction against Goldstein's continuing use of the technique. Following the ensuing violation of the strictures of the injunction, the district court entered an order holding Goldstein in contempt. This Court affirmed that order in March 1974.*fn6
While the contempt motion was being adjudicated, proceedings were taking place before a master in order to determine damages due Trio for Goldstein's infringement of the patent.*fn7 The district court appointed the master in January 1973 and his report was filed, after the taking of extensive testimony, in June 1974. The master approached the damage issue by comparing Goldstein's costs of operating the patented process with the costs of a similar, unpatented process. He found that use of the Trio process led to savings in labor costs alone of $52,791 per furnace year, and that other, smaller, savings resulted from use of the patented method as well. In order to reach a "reasonable royalty" for use of the patent by the infringer,*fn8 the master halved the labor-cost savings, and concluded that $26,390 was a reasonable royalty for each furnace year. Multiplying this figure by the number of furnace years of infringement and making slight modifications, the master found damages of $1,564,804. He recommended trebling this amount, as allowed by 35 U.S.C. § 284 (1970). After trebling and the addition of interest, the total damage figure proposed by the master was $5,062.954.
The district court viewed the damage computation not with regard to the money saved by the defendant as a result of its infringement, as the master had, but in terms of what Trio had lost. It looked first to the initial sum of $2,600 per furnace year - the amount actually charged by Trio for licenses in the 1960-1970 era. The district court then increased the $2,600 figure on the assumption that the open infringement had reduced the market price of the license, and proceeded to set damages at $7,800 per furnace year for the years prior to the decision by this Court on validity, and at $15,000 per furnace year for the period following. The employment of these two figures resulted in total primary damages of $653,839. The trial judge also reduced the master's treble multiplier to a double multiplier, and denied attorneys' fees. With interest, the total damages entered by the district court were $1,726,525.*fn9
Both parties have appealed the award of damages. Trio contends that the master's determination was correct and should not have been disturbed by the district court. It argues that the reduction was contrary to economic fact and that the district court should have based its calculations upon the reasonable royalty set by the master. Trio further asserts that the damage multiplier should not have been reduced from three to two by the trial judge, since Goldstein allegedly exhibited a substantial degree of bad faith in its infringement of the patent and there are, Trio declares, no mitigating circumstances sufficient to justify the reduction of the multiplier.
Goldstein maintains that the license fee actually charged by Trio during the 1960's - $2,600 per year for a five-year period, or $13,000 - is the proper basis for measuring damages, and that there is no reason to depart from this established rate. It further claims that there was no evidentiary basis whatever for the district court's decision to increase the established rate to $7,800 and $15,000 per furnace year in order to assess damages. Goldstein's final challenge to the damage award concerns the multiplier. Since Goldstein allegedly ...