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NORTHLAKE MARKETING & SUPPLY, INC. v. GLAVERBEL

June 10, 1999

NORTHLAKE MARKETING & SUPPLY, INC., ET AL., PLAINTIFFS,
v.
GLAVERBEL, S.A., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Shadur, Senior District Judge.

    FINDINGS OF FACT AND CONCLUSIONS OF LAW

Over the protracted length of this litigation*fn1 this Court has found every claim advanced and every defense asserted by Northlake Marketing & Supply, Inc. ("Northlake") and its principals James Hamilton ("Hamilton") and Samuel May ("May") to be devoid of merit. They have taken an unsuccessful appeal to the Court of Appeals for the Federal Circuit from a host of this Court's orders (the memorandum opinion and order and permanent injunction order each dated November 13, 1997; the memorandum opinion and order and supplement, both dated March 11, 1997; the memorandum opinion and order dated December 16, 1996; the memorandum opinion and order dated August 29, 1995; and the memorandum opinion and order dated August 4, 1994), with that Court having rejected all of those claims in a per curiam one-sentence judgment order entered November 13, 1998 (unpublished, but available as 1998 WL 796051).

With Glaverbel S.A. ("Glaverbel") and Fosbel, Inc. ("Fosbel") having prevailed on the merits of their patent infringement counterclaim, the only issue remaining before the litigation at long last terminates is the quantification of the damages recoverable for that infringement. This Court has conducted the trial on that subject, only to find the issuance of its ultimate ruling delayed substantially by the lapse of many months before the litigants tendered their respective proposed findings of fact and conclusions of law.

Those submissions have now been made, and what follows are this Court's Findings of Fact ("Findings") and Conclusions of Law ("Conclusions") in accordance with Fed.R.Civ.P. ("Rule") 52(a). To the extent (if any) that the Findings as stated may be deemed conclusions of law, they shall also be considered Conclusions. In the same way, to the extent (if any) that matters later expressed as Conclusions may be deemed findings of fact, they shall also be considered Findings. In both of those respects, see Miller v. Fenton, 474 U.S. 104, 113-14, 106 S.Ct. 445, 88 L.Ed.2d 405 (1985).

Findings of Fact

Parties and Background

1. Northlake Marketing was formed as a partnership in 1984 and incorporated as Northlake Marketing & Supply, Inc. in 1985. In 1995 Hamilton, one of the founders and a current owner of Northlake, formed Northlake Industries, Inc. as a separate company, and he is the sole owner of that company. In 1988 May, also one of the founders and a current owner of Northlake, formed N & E Refractories as a separate company, and he is the sole owner of that company. May left Northlake at the end of 1994 but did not relinquish his ownership position or his position as an officer-director. For convenience these Findings and Conclusions will also use "Northlake" as a singular collective noun to refer to the corporation and the two individual counterdefendants.

2. Glaverbel S.A. ("Glaverbel") is a Belgian corporation that was the successor by merger of two firms, each of which dated back to the 1930s. Glaverbel is the owner of the United States patents involved in this action. Fosbel, Inc. ("Fosbel") is a joint venture based in Cleveland, Ohio, 49% of which joint venture is owned by Glaverbel and the other 51% of which is owned by the other joint venturer. Fosbel is the exclusive licensee of the Glaverbel-Fosbel patents in the United States.

3. This Court has previously determined that the two Glaverbel United States patents involved in this action — Nos. 4,792,468 ("'468 Patent") and 4,920,084 ("'084 Patent") — are "not invalid," were not procured by inequitable conduct and were infringed by Northlake. This Court has accordingly issued a permanent injunction that terminates on expiration of the two Glaverbel patents. What remains is a determination of the monetary relief to which Glaverbel and Fosbel are entitled. They seek (1) an award of "lost profits" for some of the Northlake activity and (2) a "reasonable royalty" for the remainder of the Northlake activity, together with (3) prejudgment interest, (4) enhanced damages under 35 U.S.C. § 284*fn2 and (5) a determination that this is an "exceptional case" such as to call for an award of attorneys' fees under Section 285.

4. Glaverbel-Fosbel's '468 and '084 Patents are two of their four United States Patents involved in their litigation with Northlake and relating to the repair of industrial furnaces, a process referred to as "ceramic welding." In non-legal terms that process involves forming a coherent refractory mass on a "target" (e.g., a furnace wall) by projecting a mixture of particles of an oxidizable substance and particles of a refractory substance against the target. When the oxidizable substance burns exothermically (i.e., gives off heat) at the wall, it welds the refractory particles to the wall, thus repairing the furnace wall. Finding 5 describes the four patents in non-legal terms.

5. Glaverbel's now-expired United States Patent No. 3,684,560 ("'560 Patent") refers to ceramic welding where the average size of the oxidizable particles is less than 50 microns (a micron is one onemillionth of a meter). Glaverbel's United States Patent No. 4,489,022 ("'022 Patent") refers to an improvement in ceramic welding where both silicon particles and aluminum particles are present, as the oxidizable materials, in certain amounts and proportions. Glaverbel's '468 and '084 Patents refer to an improvement in the granulometry of the refractory particles. Granulometry refers to the quantity of particles at various different sizes, and also may be referred to as the particle size distribution. According to the two patents in suit, the "size range spread factor" (a coined term that can be used as a representation of the granulometry) must be at least 1.2.

6. One use of the process of the '468 and '084 Patents is in repairing the silica brick walls of a coke oven. In a coke oven the process of converting coal into coke may take from 12 to 20 hours, during which time the oven operates at a range of 1200~to 2000?. During the trial this Court observed a videotape (DX 104)*fn3 and heard an explanation of the ceramic welding process.

Lost Profits Analysis

7. Four factors (known as the Panduit factors, see Conclusion 5) are considered (if and when present) in a lost profits analysis. Those factors are (a) a demand for the patented product or method, (b) the absence of acceptable noninfringing substitutes, (c) the manufacturing and marketing capability of the patent owner (or its licensee) to exploit the demand and (d) the amount of profit that the patent owner would have made on the infringing sales.

1. Demand for the Patented Product

8. Northlake explained that the annual rate of growth in the ceramic welding industry from 1986 to 1996 was probably 35% or 40%, while in some years the market was actually doubling (DX 140 at 223-24 to 224-9).*fn4 Northlake further explained that the environmental trend has been to shut down coke plants because they give off large quantities of environmentally damaging emissions, so that many plants have closed down and more are closing down. That trend has created a drastic need to repair the remaining coke plants. Because the alternative of rebricking is so expensive, Northlake described the resulting demand for ceramic welding as a "gold mine" (DX 140 at 246-9 to 246-24). Because coke plants are no longer being built in the United States, that has contributed to the creation of the "gold mine" (DX 140 at 527-3 to 527-22).

9. Northlake's discovery answers in this case indicated that it had documents concerning its own sales projections, market share and the size of the ceramic welding market, but those documents were not produced in response to the Glaverbel-Fosbel discovery requests (DX 149).

10. Based on Northlake's own testimony, its failure to produce its documents referred to in Finding 9, its infringing sales and the Fosbel sales, this Court finds that there was a substantial demand for coke oven repair using the patented ceramic welding technology.

2. Absence of Acceptable Noninfringing Substitutes

11. Alternative techniques for coke oven repair include gunning, rebricking, lava flame and harsh press silica dusting. Findings 12 to 18 describe them and compare them with ceramic welding.

12. Gunning is the application of a water-based cement bonded refractory material through a gunning machine, which mixes the water and the cement based powder, spreading it onto the hot silica refractory. As Glaverbel-Fosbel witness John Bacon ("Bacon") testified (Tr. 293) and this Court finds:

Q. What is the expected life of a gunning repair?

    A. Very short. It can be as short as a week or two.
  Sometimes it last [sic] as long as six months.
    Q. What is the purpose of a short term repair such
  as gunning?
    A. It's a quick fix. We can get it up and back into
  service quickly. Then we can get around to doing a
  proper ceramic welding repair a little later.

13. Rebricking is a major repair to a coke oven wall, involving the replacement of bricks that make up the oven wall. In an even more major rebricking job, an entire oven wall can be replaced. To accomplish rebricking the oven has to be taken out of service, the burners must be turned off and the area being repaired has to be cooled down so that the workers can lay bricks physically. Then after the repair is made and the oven reheated, the silica brick goes through various silica transformations that can crack the new brick. As Northlake explained, cooling down the ovens sometimes takes two to three weeks, and reheating the ovens can take three months (DX 141 at 99).

14. Lava flame is a flame spraying process.

15. Harsh press silica dusting is a method by which silica powder is sprayed into the oven to fill cracks and holes and seal the oven (DX 141 at 141). It is not a long-term fix at all.

16. By contrast, ceramic welding can extend the life of the oven lining for years. Fosbel advertises that the life of its oven repair is in excess of two years. In fact the repairs typically last two to four years, with some oven repairs having been in place for 10 years. As an additional advantage, in ceramic welding the repairs are performed from outside the oven, so that all ovens can remain in service except the oven under repair, and all ovens (including the oven under repair) remain at operating temperatures. As Northlake agreed, not having to cool down the ovens is one of the things that make ceramic welding unique (DX 141 at 97). Importantly, among the various furnace repair techniques only ceramic welding and rebricking have a bona fide life expectancy of two to four years. Finally, the Glaverbel-Fosbel ceramic welding process is certified under ISO 9000, which is an international quality certification.

17. Fosbel never lost a ceramic welding bid to any of the other furnace repair techniques. No Fosbel customer ever indicated that any of the other repair techniques would be an acceptable substitute for ceramic welding. Northlake agreed that it did not compete with companies that rebrick ovens (DX 141 at 98), and it never lost any work to companies that do silica dusting (DX 141 at 158).

18. Based on the differences in the methods of making the repairs, the times that the furnaces must be taken out of service and the expected longevity of the repairs, this Court concludes that none of the non-ceramic welding repair methods has benefits comparable to those of the patented ceramic welding technique. Hence none of them is an acceptable noninfringing substitute.

19. Glaverbel-Fosbel's ceramic welding competitors for coke oven repair in the United States have included Northlake (a/k/a Exo-Ram), United Refractories, Fuse Tech and Certek. Certek competed during the period 1989 through 1991, having approximately 13% of the total market, and was thereafter acquired by Fosbel. Collectively the competitors (including Northlake but excluding Certek) accounted for less than 10% of the ceramic welding business. While Northlake's share was about 2% of the ceramic welding market, Fosbel's share was about 80% before the Certek acquisition and about 92% thereafter.

20. No direct evidence was presented during the trial as to the details of the ceramic welding powder used by the competitors (other than Northlake) listed in Finding 19. Conclusions 7 to 9 set out the reasons why on the evidence of record those competitors also did not provide "acceptable" alternatives. As the predicate for those Conclusions, this Court finds that the history of ceramic welding started with the invention of the '560 Patent, progressing to the invention of the '022 Patent and then to the inventions of the '468 and '084 Patents. Northlake sought to invalidate the two later patents (those now in suit) on the theory that the invention was "on sale" for more than one year before the filing dates of their applications, in alleged contravention of Section 102(b). In response to Northlake's summary judgment motion, Glaverbel-Fosbel submitted substantial evidence from the inventors explaining the history of their research to discover the improvement that became the basis of the '468 and '084 Patents. This Court's August 29, 1995 memorandum opinion and order provides a summary and timetable of the Glaverbel experimentation leading up to the invention of the '468 and '084 Patents (1995 WL 534290, at *4-*6). Because all of Northlake's invalidity challenges failed, on the present record the formulation of the '468 and '084 Patents is a novel and non-obvious improvement that provided material benefits over the prior ceramic welding powders.

22. In addition, Northlake's antitrust claim (statements in which may be used against Northlake under Fed.R.Evid. 801(d)(2)(A) even though disputed by Glaverbel-Fosbel) includes the allegation of Glaverbel-Fosbel's ceramic welding monopoly power — an assertion that means the absence of acceptable ceramic welding substitutes.

23. Based on Findings 11 to 22, this Court finds that there were no acceptable noninfringing substitutes of any kind — either non-ceramic methods or noninfringing ceramic welding — for the Glaverbel-Fosbel patented ceramic welding.

  3. Manufacturing and Marketing Capability To Exploit the
    Demand

24. According to Northlake, there are between 30 and 33 coke plants in the United States (DX 141 at 134). Northlake's evidence at the time of the March 1992 trial in the Indiana case between Glaverbel-Fosbel and Northlake showed that Glaverbel-Fosbel was servicing at least 23 or 24 accounts, United Refractories was servicing one or two, Lava Flame was not servicing any accounts and Northlake was servicing one account (DX 149 at 102 and 105).

25. Glaverbel-Fosbel knew the customers for ceramic welding repair at least as early as 1988, the issue date of the first of the two patents now in suit (DX 117 at 6 to 7 and Tab 5). Because you can't hide a coke oven, everybody having any relationship to the industry knew where all of the coke ovens were, and Glaverbel-Fosbel had understandably identified those customers. As for Northlake, even though it had only one customer as of 1992, during the 1989-96 period it had provided ceramic welding materials and services to 10 customers (DX 117 at 7).

26. As Finding 19 reflects, less than 10% of the ceramic welding furnace repair business went to Glaverbel-Fosbel competitors (other than Certek, which was acquired by Fosbel in 1991). Glaverbel-Fosbel had a procedure in place to handle an increase in market share of 10 to 20%, including hiring and training additional crews, transferring people among crews, scheduling the rotation and maintenance of equipment and providing for the necessary lead time to purchase additional equipment. In addition, Glaverbel-Fosbel's expert took into consideration the capital cost of additional equipment.

27. This Court finds that Glaverbel-Fosbel did have the manufacturing and marketing capacity both to make the ceramic welding sales that were made by Northlake and to provide the ceramic welding services that were provided by Northlake.

4. Profits the Patent Owner Would Have Made

28. Glaverbel-Fosbel is claiming lost profits on Northlake's sales to four customers. Fosbel had called on those customers before Northlake entered the ceramic welding market, and in some cases it had actually provided them with ceramic welding ...


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